Question of the week: Should I refinance to pay-off my home equity line and fix the interest rate?
Answer: Yes. No. Maybe.
The answer to this question, like for many Questions of the Week, is situational.
Everyone who has an outstanding Home Equity Line of Credit (HELOC) has seen their rate increase one percent (1.00%) since the Fed began raising interest rates in December 2015, and increase half a percent (0.50%) since December. Common wisdom is that the Fed plans on increasing its Federal Funds Rate as many as two more times this year and perhaps a few more times in 2018. Whenever the Fed raises or lowers rates banks follow and the result is an increase or decrease in the Prime Rate, which is the base rate for HELOCs.
Most HELOCs have a margin over Prime that sets your interest rate. For instance is your HELOC rate is Prime + 1.5% then your rate is the current Prime Rate of 4.25% + plus the 1.5% margin resulting in your interest rate of 5.75%.
Because the Prime Rate is near the 30 year rate, either below, at or above depending on many factors, many homeowners are deciding now is a great time to lock in the rate on their HELOC before the Prime Rate goes up further, or mortgage rates climb.
Should you refinance and lock in your interest rate on your HELOC?
There are several factors we look at when advising clients whether to refinance and consolidate their mortgages or not.
- What are your balances on your primary mortgage and HELOC?
- How much equity do you have in your home? (Estimated value less combined balances of your primary, or first, mortgage and your HELOC)
- What are your current rates and payments on your primary mortgage and HELOC?
- Are you in a position where you can pay off the HELOC in the near or medium future?
- When is your HELOC due? When does it go from interest only minimum payments to fully amortized?
There are more questions that come into play once we get into the nitty-gritty details but these basic questions provide a lot of guidance.
If you have a very low rate on your primary mortgage and a small balance on your HELOC that you can pay off in a few years then it probably does not make sense to refinance.
If you balances on your mortgages are about equal and you have enough equity we might be able to refinance your HELOC and your payment is equal to or slightly less than your paying now on both loans, in this case it may make sense to refinance.
When considering the payment on the HELOC, if you have been paying interest only and have a large balance owing on the HELOC it may make sense to refinance, fix the rate and start paying down your principal.
There are several variables to consider if you have a HELOC as to whether you should refinance and pay it off, to go through your situation and determine options available regarding your HELOC please call me and we can go through the numbers and options.
Have a question? Ask me!
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Housing making headlines this week as existing home sales across the country surged in May after slowing down in March and April. Nationally sales are up 1.1% from April, with single family homes up 1% and condo sales up 1.6% for the month. Year over year existing home sales have grown by 2.7%. Prices jumped up in May as well with the national median price up 3.2% from April and 5.8% from May of 2016. After a strong start of the year and then a big slow-down in the Spring the May housing report is very positive.
Locally the California Association of Realtors reports that sales of existing homes jumped 5.4% in May from April and are up 2.6% from last May. The median price in California in May was $550,200 (more than double the national average of $252,800) which was 2.3% higher than April and 5.8% from a year ago. Southern California markets were very hot in May. Los Angeles County saw a 2.5% increase in the median price for the month (to $494,040) and 5.3% for the year while sales were almost 25% higher in May than April and up 7.3% from last May. In the OC the median price saw similar increase to LA County at 2.6% with the median price at $795,000, 8.6% higher than last May, sales in Orange County were up 8.6% from April and 22.6% for the year.
Rates for Friday June 23, 2017: Rates are ready to break to the down side, and have come close but so far the line is holding steady. Next week we get the final revision for the 1st Quarter GDP, if there is no surprise upward revision that could be the event to push rates through the current resistance. In the meantime we have our fifth week in a row with no change.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:
30 year conforming 3.75% Flat
30 year high-balance conforming 3.875% Flat
30 year FHA 3.25% Flat
30 year FHA high-balance 3.75% Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages.
This past week Mother Nature looked at the calendar and saw “Summer, June 21st” and decided to throw some real summer weather at the West, not much June gloom to keep us cool!
In two weeks, on Friday July 7th, we will be having our Annual Flag Collection and Retirement Ceremony in Bixby Knolls as part of the monthly First Friday event. If you have a flag that needs retiring please bring it and we will collect and give to the Boy Scouts for proper disposal. We will be at Georgie’s Place, 3850 Atlantic Avenue, Long Beach at 6:00 and at 7:30 the Boy Scouts will conduct an official retirement ceremony of a flag. A great event if you have never witnessed a retirement ceremony.
Have a great week,