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Line of Credit Help...

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View Poll Results: What should I do?
Keep the lifetime lock at 7.4%
11.11%
Go with the revolving at 3.74%
66.67%
Other
22.22%
Voters: 9. You may not vote on this poll

Line of Credit Help...

Old 05-02-08, 12:07 PM
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Line of Credit Help...

I currently have a line of credit with a interest only lock. The interest only lock is for the lifetime of the loan. The current interest rate 7.4%. I have the option to take off the lock and go to a revolving rate. The current revolving rate is 3.99%. I might be able to get it down to 3.74% if they run a credit check. This rate is prime minus 1. If I do unlock I can't relock the loa for a lifetime, it could only be for 3,5, or 7 years. The current rate to relock is at 7.4%.

It seems like a no brainer to unlock and go revolving but I am not much of a risk taker. For as long as I can remeber, for at least 2 years the revolving rate has always been less then my current lock of 7.4%. By going to a revolving it will save me $400.00 month and I could use part of that to put on the equity.

I should mention that it costs $250.00 to remove the lock but I guess I would get that back in 15 days.

The trend has always been a lower rate then my current lock. What do we think will happen to the rates in the next 2 years? Could the revolving go from 3.74 to past 7.4 in 2 to 3 years?

What would you do?

Last edited by ANDREMIKE; 05-02-08 at 12:10 PM.
Old 05-02-08, 12:13 PM
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I would go revolving. The lock is a bad idea all around. Rates are not likely to get to the locked level in the next two year or so (IMHO) you can save alot with the difference. Use the difference to pay down the line of credit sooner, then the rate issue becomes less of an issue.
Old 05-02-08, 12:20 PM
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Yea makes sense.. Thats what I thought but I want to be sure.

Can I ask are you involved in mortgages in any way?

Does anyone know where I can find a graph of mortgage rates for Line of credits?
Old 05-02-08, 12:42 PM
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There's no "graph of mortgage rates for line of credits" --- you need to be looking at the prime rate:

http://research.stlouisfed.org/fred2/data/PRIME.txt

As you can see, there's been periods where prime has been at 8.50% and above (which would end up costing you more). But, there's been periods (especially recently) where it's been below.

How long do you expect to hold debt on this heloc? I'm guessing if cutting 4% on the interest saves you $400 per month, the debt is pretty substantial (around $140,000).

Also, extra payments go on the principal of the loan, not the equity. They go "towards" equity since it builds more equity.

Have you only been making the minimum interest only payments on the line of credit? What's the rate on your first mortgage?

If I were in your position, assuming you have no other substantial consumer debt, I would apply the savings on the line of credit towards your first mortgage, which is going to have a rate higher than 4%, by all accounts.

Eventually, the rate on your line of credit will increase. The language the Fed used in their last statement made it sound like they may end lowering the rates, although there's no guarantee and there's no way to know that this is right.

You do have some risk in that if your second mortgage is really $140,000, that's a lot of money to have at play on an adjustable mortgage, especially one that changes as quickly as a line of credit. My medium term plan would be to get that into a reasonable fixed rate, for example, a 15-year or 20-year mortgage combined with your first mortgage. At this point, you may not have the equity to be able to do this.
Old 05-02-08, 12:44 PM
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(By the way, prime minus one would be 4%, not 3.99% or 3.74%). I know some banks give a 0.25% reduction on credit lines if you have an account with them and payments are withdrawn automagically from that account each month.
Old 05-02-08, 12:47 PM
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Originally Posted by ANDREMIKE
Yea makes sense.. Thats what I thought but I want to be sure.

Can I ask are you involved in mortgages in any way?

Does anyone know where I can find a graph of mortgage rates for Line of credits?
I used to be a long long time ago.

You could try www.bankrate.com for mortage rate info but line of credit rates are usually set by individual lenders and not always tied to prime. Because these are considered to be second mortgages (in most cases) the rates may be slightly higher.
Old 05-02-08, 12:53 PM
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Your pretty close to the amount.(little lower) I have been making pretty much int only+$25.00 (not much). The 3.74 came from prime minus 1.25%, if my credit is good, which should not be a problem. I would probably only add $200.00 of the $400.00 to the principal. Need the money for other things.. I guess it would still help..

My first 30 yr fix is at 5.375%. So I don't want to touch that. I should have plenty of equity to keep me at 80%.


I see it was 8.25 in 6-2006 so if i have prime minus 1.25 it would still be lower then my 7.4. I see it at 9.5 which would make it 8.25, I guess that would raise my payment by about $80 a month..

SO what are you thoughts? I think you confused me more. Do you not recommend the revolving rate? Can I get into a 20 year fixed for less then $700.00 a month?
Old 05-02-08, 02:04 PM
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Originally Posted by ANDREMIKE
SO what are you thoughts? I think you confused me more. Do you not recommend the revolving rate? Can I get into a 20 year fixed for less then $700.00 a month?
Well, more than likely your first and second are near or above the jumbo limit, although you might be spared with the current jumbo-loan enhancements.

My advice would be to get that HELOC into a variable rate ASAP. The extra money I would send towards your first mortgage, since that is what has the higher rate right now (5.375% vs. 4% on your HELOC). That is assuming you don't have any non-mortgage debt: otherwise it should go directly to that or your 401(k) / IRA if it's not being maxed out.

Frankly the size of that HELOC scares me. I don't think that means you need to put your first and your second together right now, but it's something you need to be thinking about in the next 1-5 years, in my opinion.

This is all assuming you're staying in the house 10 years. If you think you might be moving, then just switch the HELOC to adjust and put your money towards your retirement accounts. If you're selling the house, it's useless to throw money towards principal on it in the next few years, especially considering the return you'll get on that is likely to be under 4% (possibly under 3.5%) after taxes (guessing on your tax bracket here).
Old 05-02-08, 04:15 PM
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I know no one can predict the future but you think the rates will stay below 9% prime for awhile?

I do plan on staying in this house for another 10-15 years..
I have no other debt.

I got a quote to combine my first mortgage and HELOC and the payment was what I was paying now for both. I was hoping to save a little money..

it looks like my lock expires in dec-2013.... Maybe it no lifetime.... If that the case then maybe I shouldgo variable...

Last edited by ANDREMIKE; 05-02-08 at 04:22 PM.
Old 05-02-08, 05:04 PM
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Well, you could assume that prime will stay at 8.5% or below for at least the next two years and probably for at least a quarter of the time through 2013. So more than likely, keeping it variable is a good idea.

Fixed rates are OK right now but were very very good about a month and a half ago. At some point, you will need to refinance. You should do it as soon as possible (within the next 3-5 years) but make sure your credit is very good and you've got a lot of equity in the house (the loan-to-value ratio should be 70% or below). This will guarantee you the best rate.
Old 05-05-08, 08:45 AM
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up..... anymore advice now that everyone is back to work?

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