Replacing a 1st & 2nd mortgage with a home equity loan
My husband and I wanted to refinance, and a national bank offered us a 22 year, 5.125% interest home equity loan to REPLACE the first and second mortgages. I've never heard of this before, and a friend seemed concerned that it would put us at risk. I'm not sure how it would be riskier since it's a term loan for less than our current payments. The amount we would borrow is less than 80% of the value of the home and we don't plan to move in the next 3 years (early termination fee). It does seem too good to be true, but we are current customers of this well-known bank. We have a credit score in the high 700s. I've never heard of an equity loan being in the first position, so I have no idea what questions to ask. Is this legitimate and what are the risks? by CONFUSED from Indianapolis, Indiana. Apr 23rd 2011
Rick Pelleriti (RickPelleriti)
#366 ranked lender in California - 59 contributions
My only comment is that you have the early termination fee to contend with. You wouldn't have that with a traditional 30 year fixed.What if rates dip to 4.5%? Also, you may want to shop your loan and see what it would cost you to get 4.75%. Depending on your scenario, there may be better rates out there.That's what I'm seeing right now.
J Martin (jmarr91)
#10 ranked lender in Georgia - 25 contributions
It doesn't seem too good to be true. Not a bad option.
Patrick McCarthy (PatrickM)
#22 ranked lender in Ohio - 196 contributions
Hi.Any loan where your home's equity is considered, is a home equity loan.You may be referring to a Line of Credit (HELOC). Most HELOC's are adjustable and based on the prime rate. If you are able to secure a fixed rate HELOC, what are the terms of the line of credit? My suggestion would be to ask the bank if you can deposit your income directly into the account, as to lower the principal balance that the interest is calculated on. The use a credit card to pay ALL daily or monthly expenses, write one check from the HELOC to pay the credit card off every month, thus avoiding any interest. This will accelerate the pay down of your loan drastically and much quicker that if you just pay the min payment every month. I can be reached for comment at 866-902-3576. Patrick McCarthy, Northpointe Bank, PatrickM@Northpointe.com
Richard Glover (rglover)
#35 ranked lender in Illinois - 69 contributions
There is a similar product in the European mortgage market. It never really caught in the US but essentially the mortgage and banking accounts were related. As you pay in you can access the money again. The key variable would be that you work to pay down your mortgage and if you need to go back and get the cash it is readily available. Once you pay this off and turn 62 then you may consider a Reverse Mortgage if that product is still out there because then the Credit Line takes on an "annuity like" feature where it grows at a compound rate and your $100K will grow to over $200K in 10 years....
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