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Hi Guys - I'm re-financing a house with a HELOC and have a few options - which would you choose?
Mortgage balance is $99k, HELOC balance is $18k. Adding to mortgage doesn't adversely affect rate or closing costs. Current mortgage P&I is $767 (without HELOC). Current HELOC minimum is $75, but I'm paying $225, so total monthly right now is $992.
Options are:
Include in new mortgage - monthly p&i = $844 (3.5% 15 year; ~$4,000 in interest over the term). Total monthly payment for mortgage + HELOC is $844.
Keep separate - monthly p&i for HELOC = $156 (6.25% 15 year; ~$10,000 in interest over the term). Total monthly payment for mortgage + HELOC is $864.
Keep separate, pay extra - monthly p&i = $656 (6.25% 15 year; paid off in 28 months with $1,500 in interest). Total monthly payment for mortgage + HELOC (p&i) is $1364 for 28 months, then $708, but is flexible if I didn't want to pay that one month (minimum monthly is $864).
Given all that, would you keep it separate, or roll it into the refinance process (or do something else entirely)?
If it matters, this is an investment property (rental, actively rented). I do not plan to sell it within the next 15 years, but do plan to spend $10k (cash or 0% CC financing) this year on improvements.
Sorry for not including that - I'm estimating $165k value. Income - net from all sources is approximately $5000 monthly (incl. rental income).
Expenses: Around $2400 (includes primary residence mortgage, car payment, credit cards, utilities and food/entertainment/gas/insurance). Does not include any mortgage on this (rental) property.
Actually I only cared about the income of the renal unit. I like to look at it as a stand alone investment unless you are going to use the money and income elsewhere.
My answer - New 1st, pay off current 1st and 2nd, but keep the second open if they will let you. Pay $1364 per month, if you want to pay less then pay less. How long is the draw period of the heloc? A few years ago, I'd take an ARM, not sure if I'd do it planning on keeping it for 15 years.
Did you live there when you took a heloc or get the heloc as an investment property?
... that lenders would not insist on non-owner occupied property to have just a single mortgage after refi. I suppose if there is still a ton of equity (under 70-50% borrowed out ?) in the property lender might have different guidelines but it seems foolish of them to allow too much to be loaned out.... HELOCs now routinely prohibit the SE of funds to do other deals too. I suppose if the unit needs updating that would be a legitimate use but why just go with a single mortgage, rates are crazy low?
I can sorta see why the OP might want some "flexibility" but my gut says the lender will shut down the draw on the HELOC with a new loan and if that is the case then the real "smart move" is simply reducing total outflow as much as possible, which is also the "low risk" situation for the lender and thus should be cheapest. Sometimes the win-win really is the way to go...
Actually I only cared about the income of the renal unit. I like to look at it as a stand alone investment unless you are going to use the money and income elsewhere.
My answer - New 1st, pay off current 1st and 2nd, but keep the second open if they will let you. Pay $1364 per month, if you want to pay less then pay less. How long is the draw period of the heloc? A few years ago, I'd take an ARM, not sure if I'd do it planning on keeping it for 15 years.
Did you live there when you took a heloc or get the heloc as an investment property?
Thank you very much, thelopez2 and chet everett!
I wasn't sure what you meant by income - I thought perhaps my overall income would affect your response, thelopez2. Net rental income is $150 more than the primary mortgage (including escrow), and would be about $100 more than the new combined mortgage.
I'm told the lender (Wells Fargo) will allow HELOCs on rentals, but it was owner-occupied when I opened the HELOC. The draw period on the original HELOC ends in March of this year and although it would be helpful, I don't plan to re-apply (I used the HELOC for 80% home improvement, but 20% frivolous crap, and the temptation for the latter would remain too strong).
Since there seems to be a consensus that single combined mortgage is the way to go, that's what I'm planning (there's consensus outside these forum responses too... )
OP - if you have not received your appraisal back, keep an open mind to all options. I'm pretty certain you are just picking a way to proceed with the loan, for now. Just don't get too attached to anything, including rate, until that pesky detail is in.
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It would be short of shocking to me...
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