How To Refinance A HELOC

If you have a HELOC, you may decide it's time to refinance. A HELOC (Home Equity Line of Credit) works similar to a credit card, but it has some differences. A HELOC has two phases: the drawing/withdrawal phase, and the payback phase.

A HELOC interest rate is much lower than a credit card, and the drawing phase ends after a time period. A good time to refinance is when the rates slowly start to rise. Here are tips to refinance a HELOC.

Consider the Options

If you prefer to keep making cash advances, choose the line of credit. The new line of credit interest rate will change according to market conditions, much like  a standard mortgage. This means payments can spike without warning.

Many banks now offer a fixed rate on HELOC as a third option. You are allowed to  convert the remaining balance to a fixed rate, which will not change, and you could get twenty to thirty years ot pay off the loan.. 

Another option is to refinance your HELOC and first mortgage into a new first mortgage. Rates on first mortgages tend to be lower, since the first lender has primary dibs on the money made from foreclosures. However, this could mean paying higher closing costs.

Contact the Bank

Contact the bank or financial institution that holds your current mortgage, and find out financial options. A refinancing could mean prepayment penalties. 

Your current bank may not always be the best deal, so compare fixed rates, first mortgage, and HELOC line of credit rates of other institutions. Review the terms of each offer, which should disclose fees, rates, and term length.  If you choose a fixed rate, ask how many times you can convert and  about conversion fees that may apply. 

Get the Paperwork   Refinancing a HELOC is similar to getting a new loan. The bank or institution will review your  current debts, assets, tax returns and credit scores. You may prefer to get a free copy of your credit report from each of the three major credit bureaus to check for errors.

You need to subordinate a HELOC to get refinanced. Get a printed  copy of the refinance appraisal, and  present it during subordination. A subordination form is often used when a home has two mortgages. Request a subordination form from the bank, and gather any other required paperwork, such as pay stubs and photo IDs.

A subordination form doesn't mean the bank will subordinate the HELOC on the title, but they could consider the request. Don't hesitate filing the paperwork, because the bank needs time to approve the loan before the rate lock passes. Contact a lender, Rio Grande Credit Union, for more help.

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