Refinance HELOC or Refinace mortgage or ???

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
CorradoJr
Posts: 69
Joined: Thu Apr 26, 2012 10:03 am

Refinance HELOC or Refinace mortgage or ???

Post by CorradoJr » Sun Jul 16, 2017 4:27 pm

Over the past 6-8 years, I have been working to improve my credit score and wife's credit score. Lately we are both in the 840-850 range with about 20 types of credit vehicles (mortgage, HELOC, auto loan, student loans, credit cards, store cards, etc.) Looking for some advice on my best course of action to take advantage of my situation.

Here's a short version of the past 8-10 years: Bought a fixer-upper house in 2008 and "financed" most of the $100k renovation on various credit cards (0% BT, HELOC, etc.) As of now, we have all cards paid off except for the HELOC ($22k balance left). Sometime in 2010, the HELOC bank essentially closed the door for further draws on the HELOC, citing the changed LTV ratio of our house and mortgage. Since that time, we have been making the payments as normal. We owe $220k on the first mortgage at 4.25% (21 years left), and $22k on the HELOC (variable rate, approx 4.5%). House is worth approx $400k. We have a moderate savings account, contribute to the 401ks at work, and try to max the Roth IRA for the past few years. We just had our first child so not sure if the wife will be staying home, reducing hours to part-time, or having to pay for day-care. Big bills for us are the wife's student loans ($60k left at 3.75%) which we pay almost $900/month (law school).

I'm looking for ways to maximize our situation of increasing credit scores and increasing equity in the house. We miss out on some tax breaks (28% bracket) such as the Student Loan interest deduction the past 2 years, and I believe we will not qualify for the child tax deduction this year. To counteract this, I'm deciding if maxing the 401k plans at work is possible to reduce MAGI, or whether we should plow any extra money into the student loans. We may have to do a backdoor Roth this year as well.

1. After talking to my bank, the only way the HELOC line of credit will reopened is through an appraisal ($400 cost to us), or to refinance the HELOC (no cost to us.) With our good credit score and improved LTV situation since 2010, I'm fairly certain this would be an easy choice (original was for $30k, I may try for $50k or $75k HELOC).
2. Option #2 is to refinance the mortgage with a cash-out option (paid off the HELOC) and hope for a better rate than 4.25%. We intend to stay in the house for at least another 5-7 years.
3. If we get approved for the HELOC, I may think about paying some of the student loans off with HELOC money. This way, we can still claim the mortgage interest deduction, even if the we are no longer eligible for the student loan interest deduction. Another more risky play would be to use a few 0% BTs to pay off some or all of the student loan.

Any thoughts on my ramblings above? I'd rather not have to get into an entire new mortgage or pay points, but if it is worth it, I'd gladly jump through hoops to see what can be done to help my situation. I eager to put my "good credit score" to work for my now that I've the great care to improve it over the years.

User avatar
whodidntante
Posts: 2196
Joined: Thu Jan 21, 2016 11:11 pm

Re: Refinance HELOC or Refinace mortgage or ???

Post by whodidntante » Sun Jul 16, 2017 8:56 pm

An 850 credit score will not get you a better mortgage rate than a 780 score. Both are considered "excellent credit."

You can use 0% APRs from credit cards. I do this. If you are organized, you can do it successfully and actually pay 0%. It will negatively impact your credit score if you show high utilization on revolving credit lines.

HELOCs are variable rate, and rates could realistically go up to 6% or more if it will take you a long time to pay it off. HELs are usually fixed rate, and may be a better option.

You can currently borrow against a car for very low rates if you shop around. If you have a nice paid off car, this can be a good option. Or if you plan to buy one.

You can borrow against marginable assets at very low rates (about 2.25% last I checked). This is an option if you have significant marginable assets and there is no fixed repayment, or even a requirement that you pay something at all. Make sure you understand maintenance margin before you do this. If you use the money to buy investments, it is tax deductible. Since money is fungible, you might be able to ensure it is tax deductible.

bayview
Posts: 1280
Joined: Thu Aug 02, 2012 7:05 pm
Location: WNC

Re: Refinance HELOC or Refinace mortgage or ???

Post by bayview » Sun Jul 16, 2017 9:16 pm

+1

760-780 is all you need for getting credit. Anything after that is just for bragging rights.

Credit scores get you in the door. After that, what matters is increasing income and decreasing debt. In other words, you must show that you have the ability, not just the willingness, to repay your debts.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

CorradoJr
Posts: 69
Joined: Thu Apr 26, 2012 10:03 am

Re: Refinance HELOC or Refinace mortgage or ???

Post by CorradoJr » Mon Jul 17, 2017 8:54 am

Thanks for the replies so far - any thoughts on my next steps?

Pay down the HELOC, max out my 401ks instead, etc?

User avatar
CAsage
Posts: 665
Joined: Sun Mar 27, 2016 6:25 pm

Re: Refinance HELOC or Refinace mortgage or ???

Post by CAsage » Mon Jul 17, 2017 9:55 am

Refinancing your mortgage and HELOC to drop the rate would be wise if possible. Look for a no-fee loan; in my experience other loan fees are too unpredictable to compare loans. Google for lenders!
If you wanted to take cash out or a HELOC to pay off the student loans, that would at least make the interest deductable but you are putting your house at risk. I would also max out my 401k to get your taxes down, as you may be in a lower bracket if you wife stays home. Oddly enough, having not yet paid off a very expensive education, I would think it would be worthwhile for her to keep working! The ultimate goal is to increase your net worth, not your credit rating by taking out lots of loans and juggling them....
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

Post Reply