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Why would anyone want to pay about 9.75% on a HELOC loan today when they can get a 15-year fixed-rate loan at about 7.15%? Makes no sense to me.
Which lenders available to the OP are providing you those rates?
Of course, with the OP aiming to pay off ASAP, the difference in interest costs is much less painful. And, as noted, borrowing that $50,000--$75,000 can be very difficult.
Quote:
Originally Posted by SmartMoney
This could very well be a good option. HELOCs can be a 2nd lien or a 1st lien. Some lenders pay all the closing costs on HELOCs. (I'm quoting our terms, but most are the same). Your line would actually be open for 10 years for use, then it will go into a 20 year payback. If you pay down the Line, you can access it again, before the 10 year draw period ends. Pay it off = no payments, but keep it open in case you need the funds. In this very strange world, the rate for a HELOC is comparable to a fixed.
You could actually get a line for 75K and have room for future use (suggestion - if you do not draw it, you won't pay on it).
The only caution is if you get a line where the lender pays closing, you likely need to keep the line open (not to be confused with paying it to $0) for 3 years to avoid the closing costs being added to the payoff.
Which lenders available to the OP are providing you those rates?
Of course, with the OP aiming to pay off ASAP, the difference in interest costs is much less painful. And, as noted, borrowing that $50,000--$75,000 can be very difficult.
I got my rate info from the financial page of today's newspaper which lists the National Average for Consumer Rate loans. Specifically, it reads:
$30K Home Equity Loan 9.74%
15 year Fixed Mortgage 7.14%
Got it.
"Average" means there are better and worse rates.
Of course, when shopping for money, no one aspires to pay "average rates" when significantly lower rates are available.
I start my searches with lower end rates and go from there, vetting lenders.
There is much more swing in HELOC rates and costs than in fixed mortgage rates from commercial banks.
HELOCs are portfolio credit. Mortgages are almost always resale products so have to offer a margin to two parties. Portfolio mortgages tend to be expensive, as they tie up capital.
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IF I was the OP, I would contact SmartMoney here on CD for some market guidance. She has offered such help per this link to the 2nd post in the thread and she knows the lending market well.
Or...
The OP appears to be shopping for a home in NY State. There are many credit unions that allow consumers to join for a single digit annual fee.
OP might do well to investigate joining BethPage Federal Credit Union, which is one of those CUs. https://www.bethpagefcu.com/home-equity-line-of-credit/
Introductory HELOC rate of 6.99% for the first 12 months with some reasonable stipulations.
[1] APR = Annual Percentage Rate. The introductory APR is fixed for one year (twelve months). After one year, the APR is variable based on the U.S. Prime Rate as published in the Wall Street Journal, plus a margin. To obtain an introductory rate, borrower must meet credit and loan program requirements, including (but not limited to): 1) maximum Combined Loan-to-Value (CLTV) of 75%, 2) minimum VantageScore 4.0 credit score of 720 3) borrower must take an initial draw of $25,000 and maintain this balance for 12 months, 4) borrower must have automatic transfers from a Bethpage personal savings or checking account for the monthly HELOC payments, and 5) borrower must not have had a previous introductory rate for a Bethpage HELOC within the past five years. The introductory rate applies to the variable line in use only and is not applicable to any Fixed-Rate Loan Option, (see below)[6]. Loan amounts over $500,000 are not available for the introductory rate. For Closing costs, see below[3].
[3] Closing costs for the first $500,000 will be paid by Bethpage but must be repaid by the borrower(s) if the HELOC is closed within first 36 months of account opening. These fees generally range between $500.00 and $15,000.00 depending on the line amount, property value, location, and/or property type. Line amounts over $500,000 may be available on a case-by-case basis to qualified applicants, are not eligible for the discounted introductory rate at any time, and the borrower(s) will be responsible for mortgage-related taxes and title insurance costs on the line amount over $500,000 (up to the approved credit limit). The total third party fees generally range between $500.00 and $60,000.00 depending on the line amount, property value, location, and/or property type. Property insurance (including flood insurance, if applicable) is required.
The devil is always in the fine print. What may initially seem like the better/best deal may not be such a good deal after all things are taken into consideration. Closing costs, potential penalties, and restrictions can certainly affect the desirability of the loan selected.
My post above simply shows what the national average interest rate is for those types of loans, but those rates may or may not be available in the OP's area. Also, the OP needs to take his own circumstances into consideration on which type of loan is better for him.
The devil is always in the fine print. What may initially seem like the better/best deal may not be such a good deal after all things are taken into consideration. Closing costs, potential penalties, and restrictions can certainly affect the desirability of the loan selected.
My post above simply shows what the national average interest rate is for those types of loans, but those rates may or may not be available in the OP's area. Also, the OP needs to take his own circumstances into consideration on which type of loan is better for him.
I agree with all of the typical generic disclaimers above.
I also absolutely believe that the OP can do much better than a 9.75% rate, perhaps even being easily competitive with the lowest fixed rate mortgage rates and costs, as SmartMoney suggests.
Clearly, the 6.99% for 12 months that Bethpage CU mentions beats a 9.75% rate even with the mild stipulations on their site.
We are hoping we'll find a house to buy that we can pay cash for, but if we find the perfect place and it's $50,000 or $75,000 over, we would certainly be fine with taking a mortgage for that amount and paying it off as quickly as possible. Is a mortgage that small difficult to get? Are the interest rates higher? Any other downsides of a small mortgage? Would another type of loan be better? Thanks.
What area are you looking? It seems like the amount of your budget might matter in this.
Say you're looking at a property in Hicksville Arkansas, with the purchase price of $112k. That "$50-75K" is a substantial percentage of your commitment. Not a lot of collateral for the lender, there. They may balk.
Now, if the property were in Newport Beach, Cal, with a purchase price of $7 mil, then I'm pretty sure any bank would LOVE to write you a check for $50-75k.
What area are you looking? It seems like the amount of your budget might matter in this.
Say you're looking at a property in Hicksville Arkansas, with the purchase price of $112k. That "$50-75K" is a substantial percentage of your commitment. Not a lot of collateral for the lender, there. They may balk.
Now, if the property were in Newport Beach, Cal, with a purchase price of $7 mil, then I'm pretty sure any bank would LOVE to write you a check for $50-75k.
So, again...where you looking?
Central NY state / Finger Lakes region. Rochester's southeast suburbs, Skaneateles, Corning, and areas in between those locations.
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