Why I Can’t Refinance My HELOC Loan
Be careful when you apply for a home equity line of credit
HELOC: Home Equity Line of Credit, or in other words; Having Evidently Little Outside Control over my loan.
I needed to refinance my HELOC loan. When we first bought our house, we decided to finance the HELOC to avoid mortgage interest. Our mortgage lender got us (what we thought was) a good deal at the time. However, several things have happened to make us want to switch over to another bank for a HELOC. Here’s some examples:
- Our interest rate is variable and over 7% (My first mortgage interest is fixed at 4.25%, the rate offered at the time of the loan. My only credit card charges me 9.9%, pretty good for a credit card. In my opinion, this is a high interest rate for a HELOC).
- The banks website only allows us to make online payments. We aren’t able to check a balance or any other details about our loan. Either they aren’t advanced enough or they purposefully withhold that information. And their customer service sucks.
- We are billed only on the interest. Because we can’t access any details online, I will add on some money to pay down principal, which is a shot in the dark.
- The loan interest amount has increased over $30 per month since we’ve had the loan, instead of lowering in interest, even though I’m paying down the principal. I would guess this is because it’s a variable loan and interest rate have increased.
The first reason is enough to make me want to switch to another loan. The second reason is what makes me irate and feel like I have no control over how to pay on my loan.
Here’s a little history in grossly rounded numbers:
We bought our home two years ago for $500k. We put $50k down and financed the rest; $400k on our first mortgage and $50k on our HELOC.
In the past two years, our house has appreciated to $575k market value. We now owe $48k on our HELOC. Our first mortgage balance is $397k. Total owed $445k. This gives us in theory: $130k in equity.
Lucky us! What a great initial investment we’ve had with our home.
We’ve always wanted to get rid of our HELOC. We never wanted in the first place, but considering the market where we live, homes are pricey and we were able to live with this loan with the idea we’d pay it off as soon as possible, or find away to transfer the money to a different fund for payoff. With our theorized equity at $130k, we felt we were now in a good position to take action.
That’s not how it works in this situation.
Our credit union is offering HELOC loans with a 2.9% interest. Perfect! We could transfer to a lower interest loan and cut down the money spent on interest and pay more towards the principal.
We contacted the loan officer at our credit union, and they told us we weren’t able to get a HELOC loan through them.
They do not use market value to estimate what they will offer for a HELOC loan. Instead, they use the tax assessed value of the home.
In my state, (I don’t know about other states) the tax assessed value is way under market value. In my case, it’s almost 50% under market value (my home’s tax assessed value is $288k). That’s great for paying taxes, not so great for refinancing.
Since we owe more on the house than our assessed tax value, we’re unable to refinance our HELOC. Period. We won’t be able to apply for another HELOC until our loan is at 75% of our tax assessed value of $216k.
Even though we already have a HELOC, we can’t just “refinance” it.
However, if I were to max out my credit card, then decide to get another card with a lower interest rate to transfer my owed money over to them, I’m pretty sure the banks would let me do that.
Different rules and we have to play by them.
The only way I’m going to be able to get rid of that HELOC is to:
- pay it off. If I were to throw a thousand dollars towards the principle every month, it would take me four years. That doesn’t count the interest.
- Refinance my mortgage and roll the HELOC into one loan. This would cost me in loan origination fees of 1% on average. In other words, a $500k loan will cost me $5k in fees. Plus, I’d probably also have to pay mortgage fees.
I will keep trying to find a bank or credit union that will base my house on market value and be willing to take over my current $48k HELOC from another bank. I know somewhere there’s a bank willing to take my money.
A good lesson for me and hopefully you can learn from it.
This article is for information purposes only. It is not guaranteed that all information will be accurate. It is not meant as financial or legal advice. Consult a financial and/or legal professional before making major financial decisions or investments.
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