Refinancing a home loan and a HELOC

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Topic Author
kylemerriman
Posts: 31
Joined: Mon Jan 09, 2017 8:56 am

Refinancing a home loan and a HELOC

Post by kylemerriman »

I have a family member that is considering refinancing, but is not sure if they can refinance because they currently have a HELOC. Can a HELOC be worked into a new loan? Would it be worth it for them? They have good credit and employment.

Home mortgage:
$1480/mo, 15 years left on the loan, 6.25%, $125,000 balance

HELOC:
$665/mo, 7 years left, not sure on the rate, $40,000 balance

The house appraises around $350,000.
alex_686
Posts: 6833
Joined: Mon Feb 09, 2015 2:39 pm

Re: Refinancing a home loan and a HELOC

Post by alex_686 »

HELOC usually is a second lien. You will need sign off from the bank. Usually the bank is happy to remain in second place in normal times. With this LTV it should be a slam dunk. However, it depends on how stressed / paranoid the HELOC bank is. Alas, this is not normal times.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
LittleMaggieMae
Posts: 363
Joined: Mon Aug 12, 2019 9:06 pm

Re: Refinancing a home loan and a HELOC

Post by LittleMaggieMae »

Yes, you should be able to do a refinance where the new mortgage pays off the HELOC and the old Mortgage. So, a loan for $125K + 40K = 165K new mortgage.

Say you've got the 125K mortgage with Bank A and a HELOC second mortgage/loan at Bank B. Bank C might be more than happy to offer you a NEW mortgage that will pay off Bank A and Bank B.

If both loans are with Bank A - Bank C will also probably happily pay off both loans and give you a new mortgage.

There's some chance that the Lender for your Mortgage (or HELOC) would be happy to give you a new Mortgage (which will then pay off the old mortgage and the HELOC).

I would recommend getting your current loan info together and go ahead an talk to your lenders. I would look at doing a 15 year mortgage. I suspect the new Principle and Interest payment (the "mortgage") will be lower than the combined amount now being paid. The 15 year mortgage means the homeowner is still on track for "pay off" in 15 years.

Be aware the super low interest rates (under 3%) probably aren't going to apply to the new loan (small loan - and I'm guess maybe it's a condo or townhouse because of the higher interest rate?) But you still should get something under 4% - closer to the 3%.

If the loan and the HELOC are both 15 years old... I'm wondering it these loans are from the real estate bubble back in 2005... if that's true then the two loans were probably written with a "and you can always refi the main mortgage to pay off the HELOC - probably in a year or two with the way property values are going up!!) It these are old 2005 era loans... I'm sorry it's taken so long for the homeowner to think about doing a refi... those old loans were expensive. :(
LittleMaggieMae
Posts: 363
Joined: Mon Aug 12, 2019 9:06 pm

Re: Refinancing a home loan and a HELOC

Post by LittleMaggieMae »

alex_686 wrote: Fri Oct 16, 2020 7:45 pm HELOC usually is a second lien. You will need sign off from the bank. Usually the bank is happy to remain in second place in normal times. With this LTV it should be a slam dunk. However, it depends on how stressed / paranoid the HELOC bank is. Alas, this is not normal times.
Why would the homeowner only refi the original mortgage - keeping the HELOC with a balance? they may get a better interest rate on the first mortgage if they get a loan over 150K.
Wouldn't it make more sense to do a whole new first mortgage that pays off the old mortgage AND the HELOC? Once the new mortgage is in place - they can open a new HELOC with a zero balance - if they need the line of credit.

A 15 year 165K mortgage at 4% = $788.00 per month. I'm gonna guess the Property Tax and Insurance on the existing First Mortgage is $250 a month.
That's a monthly payment of $1038 - heck round it up to $1100 a month versus the $1480 + $665 = $2145 per month currently being paid.
Topic Author
kylemerriman
Posts: 31
Joined: Mon Jan 09, 2017 8:56 am

Re: Refinancing a home loan and a HELOC

Post by kylemerriman »

Thanks for the replies. The borrowers are retired military so I'm guessing they could get a pretty good rate.
Agent86
Posts: 6
Joined: Sun Mar 16, 2014 5:45 am

Re: Refinancing a home loan and a HELOC

Post by Agent86 »

You will do this as a cash-out refinance using your primary home/mortgage.

In your case, moving closer to a $200K loan may actually make ti easier to obtain a refi (for the smaller loan amounts, the fees may not be worth the effort for loan processing).

Given your situation, your primary loan rate will drop significantly and by combining it with the HELOC payoff (the mortgage broker will handle the payoff), you eliminate the HELOC leaving you with a single, lower payment overall.

Interesting side note, when you payoff the HELOC it will close and negatively impact your credit rating (you have reduced a large amount of available credit (percentage use of available credit metric), and a good pay off record (years metric)).

--- Agent86
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