My heloc refinancing

Well it’s time for me to refinance my heloc. Actually refinancing isn’t the correct term when it comes to a home equity line of credit. It should more correctly be described as getting a new heloc with a higher credit limit. Anyway, now that I’ve noted the correction I’ll revert to the incorrect term because everyone uses and I see no point in adding to the confusion unnecessarily.  Enough said on that topic.

Where was I? Oh yea, refinancing my heloc.

I know it seems ridiculous to want to get an adjustable rate loan when the rate on fixed loans are so low even the snakes are having a hard time getting that low. But I have this fixation in the belief that it is always best to borrow money when you don’t have a need for the money.

As I look around today. I see a very uncertain financial landscape and my poor little $25,000 heloc just isn’t making me feel that secure. I’m just not feeling the love that comes with knowing that if a situation arises that requires some cash my little heloc isn’t going to be big enough to cover it. Then what?.........  I do know is this!

I’ve got a 16 year old that’s starting to think about what collage he wants to go to in two years. Therefore, I’m looking at what the cost of higher education is today (now I fully understand why they call it higher education).  Anyway, paying for education is a great reason to have access to cash. Knock on wood; I should be able to cover my son’s expenses …. But you never know what may come up.  

Other great reasons to refinance my heloc

2. Cover unexpected medical expenses. Have you seen what it costs to be sick? It’s outrageous. It’s also the number one reason people declare bankruptcy.   I’m in good health but….! Getting Older, so I guess I now have another reason to increase my heloc limit. 25K isn’t looking like a lot of cash now.

3. Make home improvements. Looks like I’m safe here. The old homestead is in good shape. BUT….. ! With junior going off to college soon, the wife may decide she needs a new focus in her life. Come to think of it. She does keep mentioning how nice a swimming pool would be.

4. Pay off credit cards/debt consolidation. Well I know I’m safe, safe, safe here. No card debt. Thank God.

So I’m OK with one out of four. That doesn’t instill a lot of comfort. That 25k home equity line of credit is looking pretty tiny right about now. Yep… it’s time to refinance that heloc !

 

You never know what tomorrow will bring. Today I know I can qualify for my refi.

 

When I was active in the mortgage business, borrowers that were close to closing on a refinance often asked if I thought they could hold off making their monthly payment on the so and so credit card, car note etc. because it was going to be paid off with the refi money. My reply was always the same; don’t miss a payment if you can help it. You never know what can happen between now and then. Most of the other loan professionals thought I was being overly cautious but I always have in the back of my mind... you never know.

I never expected to live to see the financial world come grinding to a halt on September 11, 2001. But it did! Then I had the opportunity to witness first hand all manner of people’s lives come to a grinding halt on an August day in 1995 when a storm by the name of Katrina ravished the gulf coast. My rather dramatic point is you..... "just never know where your life is going to be when you have a need for money". And if you think you were going to qualify or fund a loan during any of the examples I have given you. Think again. It wasn’t going to happen. With 9/11 things got back up after a couple months. With Katrina there are people still struggling and then September 2008 comes and whole segments of the mortgage industry are, poof….gone. I don’t have a crystal ball and don’t know anyone that does.

 

This is the number one reason to refinance my heloc.

It offers protection in the future, against an unforeseen event. Protection that I qualify for and get now when my credit is good and I don’t have a need for the money.

 

For this reason the major disadvantages for refinancing my heloc …

 

1.  Additional closing costs. This is a minor consideration that can largely be negotiated away with my lender

And

2. It’s an adjustable rate loan. This really doesn’t enter the equation until I have a need for the money. As longs as the money is not drawn on there is no interest accrued.

 

… doesn’t seem to be a major concern for me now. Yep, I think its time to refinance my home equity line of credit (HELOC).

What's a heloc ?

 

Heloc is the acronym for home equity line of credit. It really isn’t a difficult mortgage concept to grasp. You can actually think of it as a credit card account set up with your lender to draw on the equity you have in your property. For this reason they are most commonly used as a second mortgage.  However, unlike a second mortgage where you get your money 3 days after closing, with a heloc you don’t get the funds.  You get the promise of the lender to advance you up to a certain amount of money in the future.

This promise to pay dynamic, offers a number of advantages over a typical second mortgage. 

 

Major Advantage of a heloc…..

Is your offered a line of credit that gives you access to the money. There’s no requirement to use any of it, if you don't want to. This can particularly beneficial if you have a need to access funds without a requirement for any particular amount. This sort of flexibility allows you access to funds when the need arises. The draw period is usually limited to 10 years. When viewed with the concept that it is always best to borrow when you don’t have a need, presents the perfect situation for a heloc . Allowing you access to money as you your needs arise.

Pay Interest just On the Money you Use

A heloc only accrues interest on funds that are drawn out of the account. You're not paying interest on money that's sitting idle. Why pay interest on money you’re not using?

 

Major Disadvantage of a heloc......

In my opinion, at the present time, the biggest disadvantage of a heloc is that they are adjustable rate loans with the added unattractiveness of no caps that can limit your exposure to rate increases. This is almost insurmountable with today’s low fixed rates if you have an immediate need for money without the ability to repay it quickly. Keep in mind that there can be any number of fees that are associated with home equity lines of credit. Some lenders charge a monthly or annual maintenance fee. Some charge a fee if the money sits and doesn't get used. You can avoid many of these charges if you shop around. A few offers the ability to convert to a fixed rate loan if the rates of interest get too high but with the rate atmosphere today this may be an non-issue  trade off. Next post we'll look at the heloc rate.

Welcome to Heloc for Beginners

So you think you need a heloc loan? But with today’s ever changing market conditions  you’re not sure how to proceed. Whether  you’re a mortgage expert or have no clue about things financial. If you need information about a home equity line of credit (heloc) you’ve come to the right place. Should you have any questions  please feel free to contact us via email.