topic Re: HELOC vs. Cash out refi in Mortgage Loans

HELOC vs. Cash out refi

jmzalesak — Mon, 16 May 2022 20:09:43 GMT

Hi all, curious about your opinions on these 2 options based on current market conditions.

Some key data points:

I'm looking for some cash to use over the next 4 years to pay for college and/or house remodeling
I have about $200K in equity at the moment
I have spoken to a couple lenders and each are pushing one of the options.
Pros for HELOC seem to be:
- No closing costs
- Don't have to tap in to all the credit right away
- Interest only payments for 10 years
- Higher LTV possible
Cons for HELOC:
- Variable rate that grows as the prime rate grows
- High repayment period payments.
- ?
Pros for cash out refi
- One fixed payment
- fixed interest rate
- ?
Cons for cash out refi
- Refi out of low current rate (2.5%)
- Must take all cash out and use it or "save" it somewhere.

Looks like I can get a current rate of around low 5% for the HELOC and high 5% for the refi rate.

Any opinions welcome. Thanks in advance.

Re: HELOC vs. Cash out refi

mtkel — Mon, 16 May 2022 21:06:56 GMT

Maybe look into a fixed home equity loan option? I'd hate to refi the bulk of your mortgage out of a 2.5% rate. DCU has fixed home equity at 5%

Re: HELOC vs. Cash out refi

jmzalesak — Tue, 17 May 2022 10:39:18 GMT

Thanks. I actually applied for one at DCU to see what it looks like. Waiting for approval but seems I can get a 20 year term at 4.7%. Might be the best of both worlds...

Re: HELOC vs. Cash out refi

TheKid2 — Tue, 17 May 2022 15:18:53 GMT

Some HELOCs allow you to lock-in a repayment rate before the draw period ends and essentailly start repayment early. So, you can get what you need and don't have to go the full 10 years at a variable rate.

Re: HELOC vs. Cash out refi

compassion101 — Sun, 22 May 2022 01:14:28 GMT

I'd really try to avoid losing that 2.5%, that would seem to add $300-700 a month to your costs (assuming your balanmce is 200-400k).

What LTV are they offering to use for the HELOC?

Re: HELOC vs. Cash out refi

jmzalesak — Thu, 23 Jun 2022 13:49:36 GMT

So we are at the end of this process and I was reading through the closing docs and see this...

7. MINIMUM PAYMENT. Each billing statement we send you will identify a minimum monthly payment amount that you
must pay. During the Advance Period (including any extension thereof), your minimum monthly payment will be the
greater of $100.00 or the accrued finance charge, plus any fees and amounts past due.

If I'm reading this right they are charging me $100 monthly if I have not used the credit line? Since this is for college tuition next year and maybe home improvements this year, this is a big problem for me. Does this seem like a standard/fair "inactivity fee"?

Re: HELOC vs. Cash out refi

TheKid2 — Thu, 23 Jun 2022 13:57:42 GMT

@jmzalesak wrote:
So we are at the end of this process and I was reading through the closing docs and see this...

7. MINIMUM PAYMENT. Each billing statement we send you will identify a minimum monthly payment amount that you
must pay. During the Advance Period (including any extension thereof), your minimum monthly payment will be the
greater of $100.00 or the accrued finance charge, plus any fees and amounts past due.

If I'm reading this right they are charging me $100 monthly if I have not used the credit line? Since this is for college tuition next year and maybe home improvements this year, this is a big problem for me. Does this seem like a standard/fair "inactivity fee"?

You haven't shared who and what product you went with, so I don't know if anyone can comment specifically. I would agree that appears to say it is a minimum of $100 a month. That does not make sense for a HELOC, but could make sense for a HEL. The HELOCs I'm looking at are $99 per YEAR mnimum if interest payments are not made, i.e. if I don't use the credit line I would be paying $99 per year.

Re: HELOC vs. Cash out refi

jmzalesak — Thu, 23 Jun 2022 14:17:03 GMT

Its with Penfed. $150K at (now) 5.25%. Standard 10/20 HELOC terms.

Yes, I also have the $99 fee per year which I assumed was the extent of such fees. I'm waiting hear back from my LO.

Re: HELOC vs. Cash out refi

DSTforlife — Thu, 23 Jun 2022 15:06:20 GMT

I believe it means, if you have a balance, your payment will be at least $100. the same as credit cards haveing minimum threshold for the amount due. the inactivity fee is an annual charge and is usually around $99.

Re: HELOC vs. Cash out refi

jmzalesak — Thu, 23 Jun 2022 16:07:17 GMT

Yep, I got confirmation that is how it works. Still not thrilled because per my calcs using an online calculator, I have to draw at least $23K to reach $100 interest monthly at 5.25%. Thus, if I draw anything less initially I’ll be paying the interest amount due plus a monthly fee to reach that $100.

Re: HELOC vs. Cash out refi

jmzalesak — Thu, 23 Jun 2022 16:58:15 GMT

Found out the interest payment overage will be applied to principal (is not a fee). So alls well that ends well.