Cash out refinance vs HELOC

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
Investing Newbie
Posts: 117
Joined: Sun Jun 22, 2008 1:27 pm

Cash out refinance vs HELOC

Post by Investing Newbie » Sun Aug 11, 2019 7:34 pm

Hi everyone,

I posted a thread a little over a month ago regarding refinancing my current 30 year 4.75% mortgage into a 15 year loan. We were just getting close to finalizing the deal when an issue came up and I'd appreciate some input.

We have solar panels on our home. They're being financed, not a lease or power purchase agreement, with $15,000 remaining. Unbeknownst to us the loan servicer has a lien on the home until the solar loan is paid off. This is apparently a common practice for solar panels.

We were about to get a 15 year 3% mortgage with 0 points, but the lien has created an issue. The bank told us there are two options:

1. Pay off the solar loan and get the 3% with 0 points loan. We'd prefer to not take an unexpected chunk out of our savings, but this isn't off
the table.

2. Cash out refinance at 3.125% with 1/8 point (which is about $500).

Those were the two options we were offered, but wouldn't a home equity line of credit be another option? This way we could have the 3% loan for the mortgage and a second, although higher interest, loan for the remaining $15,000? I'm not sure if this is possible, but want to check if this is even a wise option before discussing with the loan officer tomorrow.

Thanks.

MindTheGAAP
Posts: 297
Joined: Fri Jan 31, 2014 12:44 am

Re: Cash out refinance vs HELOC

Post by MindTheGAAP » Sun Aug 11, 2019 7:55 pm

Option 2 for me every day of the week but partially because it’s not much different on the rate and also simplifies things. You’re getting a way better mortgage rate still and the HELOC would be higher IR%.

Suppose it comes down to how much cash you’d be out for paying the solar panels off and how you feel about it. At 3% you’d recoup savings pretty quick comparative to the 4.75% existing note.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

Topic Author
Investing Newbie
Posts: 117
Joined: Sun Jun 22, 2008 1:27 pm

Re: Cash out refinance vs HELOC

Post by Investing Newbie » Mon Aug 12, 2019 5:25 pm

Thank you for much for the reply. I think option 2 is the way to go.

Any other replies?

wilked
Posts: 1523
Joined: Thu Mar 24, 2011 1:50 pm

Re: Cash out refinance vs HELOC

Post by wilked » Mon Aug 12, 2019 6:53 pm

what is the rate on that 15K?

What is your savings?

Iridium
Posts: 485
Joined: Thu May 19, 2016 10:49 am

Re: Cash out refinance vs HELOC

Post by Iridium » Mon Aug 12, 2019 6:57 pm

Would the solar company be willing to be second behind the new loan? Lots of their customers presumably have a similar issue. They probably have a procedure for folks who want to refinance.

User avatar
unclescrooge
Posts: 3597
Joined: Thu Jun 07, 2012 7:00 pm

Re: Cash out refinance vs HELOC

Post by unclescrooge » Mon Aug 12, 2019 7:14 pm

Iridium wrote:
Mon Aug 12, 2019 6:57 pm
Would the solar company be willing to be second behind the new loan? Lots of their customers presumably have a similar issue. They probably have a procedure for folks who want to refinance.
Probably not, because the way the contact is usually written, any prepayment comes without penalty, but the interest due still needs to be paid. So they usually make a 15 year loan knowing that it will get paid in 7, and their interest rate will end up being twice what you thought it was.

But it doesn't hurt to ask.

Topic Author
Investing Newbie
Posts: 117
Joined: Sun Jun 22, 2008 1:27 pm

Re: Cash out refinance vs HELOC

Post by Investing Newbie » Mon Aug 12, 2019 9:03 pm

wilked wrote:
Mon Aug 12, 2019 6:53 pm
what is the rate on that 15K?
3.75%

What is your savings?
Currently between 6months to 1 year in Ally savings as emergency fund. Don't really want to pay off the solar loan though because we'd prefer to keep the liquidity.
When I spoke with the loan servicer they told me the loan would need to be paid off to be removed. I wasn't aware that I should ask them if the loan can be second behind the new loan. I'll try that tomorrow.

rascott
Posts: 485
Joined: Wed Apr 15, 2015 10:53 am

Re: Cash out refinance vs HELOC

Post by rascott » Mon Aug 12, 2019 9:09 pm

Duplicate
Last edited by rascott on Mon Aug 12, 2019 9:11 pm, edited 1 time in total.

rascott
Posts: 485
Joined: Wed Apr 15, 2015 10:53 am

Re: Cash out refinance vs HELOC

Post by rascott » Mon Aug 12, 2019 9:11 pm

Yeah it's possible.... if you got the HELOC how fast would you pay it off?

Another way to look at it is to get the HELOC and pay it off via your savings, and you'd still have access to that liquidity if needed.

How much is the mortgage balance?

If the solar company will agree to a resubordination, that may be the best.

Topic Author
Investing Newbie
Posts: 117
Joined: Sun Jun 22, 2008 1:27 pm

Re: Cash out refinance vs HELOC

Post by Investing Newbie » Mon Aug 12, 2019 9:21 pm

Would probably pay the loan off in a year.

Mortgage amount is $396,000

Topic Author
Investing Newbie
Posts: 117
Joined: Sun Jun 22, 2008 1:27 pm

Re: Cash out refinance vs HELOC

Post by Investing Newbie » Mon Aug 12, 2019 10:31 pm

rascott wrote:
Mon Aug 12, 2019 9:11 pm

If the solar company will agree to a resubordination, that may be the best.
This is a new term for me, so I had to look it up. Seems this applies if I already had a HELOC and am trying to refinance my mortgage, this will keep the HELOC second in line, is this correct? I don’t have HELOC currently, so not sure if this option applies.

In my situation I suppose I would apply for a refinance and HELOC at the same time, is this possible?

If I were to apply for HELOC now and have to wait to get approved I will likely miss out on my lock in period on my refinance opportunity.

Would the HELOC and 3% mortgage save that much over a 3.125% to make this worth it?

Thanks for the help.

rascott
Posts: 485
Joined: Wed Apr 15, 2015 10:53 am

Re: Cash out refinance vs HELOC

Post by rascott » Mon Aug 12, 2019 11:42 pm

Investing Newbie wrote:
Mon Aug 12, 2019 10:31 pm
rascott wrote:
Mon Aug 12, 2019 9:11 pm

If the solar company will agree to a resubordination, that may be the best.
This is a new term for me, so I had to look it up. Seems this applies if I already had a HELOC and am trying to refinance my mortgage, this will keep the HELOC second in line, is this correct? I don’t have HELOC currently, so not sure if this option applies.

In my situation I suppose I would apply for a refinance and HELOC at the same time, is this possible?

If I were to apply for HELOC now and have to wait to get approved I will likely miss out on my lock in period on my refinance opportunity.

Would the HELOC and 3% mortgage save that much over a 3.125% to make this worth it?

Thanks for the help.
I wouldn't take 1/8th a point higher on a 400k mortgage just because of this 15k loan. That would be very bad deal....that's almost $500 extra interest just in the 1st year. Pls the $500 in points. You are in the hole $1k on a 15k debt. That's 6.67%....and then you get to keep paying an extra 1/8th point for the life of your loan.

Resubordination just means the 2nd lien agrees to stay in the 2nd position. It's usually easy paperwork when dealing with a 2nd position lien holder. But if you have incompetent people in either your 1st mortgage shop or the 2nd's servicing dept, it sometimes won't work.

I'd try that first and push it hard.

If not, try for the HELOC....they can be closed together no problem. This is called a piggyback loan. If your first can't do it for whatever reason...go find someone else that can. Much better to do it with your lender on your new 1st mortgage as you won't have to pay an extra appraisal.

If all else fails.... pay it off out of your savings and then go get a HELOC after closing if you really feel you need the liquidity. I doubt you actually do, but it's there if you really need it. I've done this on too many homes to remember, as I like to keep access to liquidity at all times if a great deal falls in my lap. I usually always toss in a HELOC when buying a home of it isn't going to cost me anything.

Topic Author
Investing Newbie
Posts: 117
Joined: Sun Jun 22, 2008 1:27 pm

Re: Cash out refinance vs HELOC

Post by Investing Newbie » Tue Aug 13, 2019 2:39 pm

Hi,
I spoke with the legal team with the title company, apparently the lien is structured in such a way that placing it second in line is not possible. I looked into the HELOC, but that process isn't as straightforward as I'd hoped. Running out of time for the 3% rate to expire or else all of this is moot. I suppose sucking up the cost and paying off the solar panel directly is the best way to proceed in the long run.

Thanks for all the input everyone.

Post Reply