What a goof!/Locking variable rate
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| Fri, 10-28-2005 - 11:22am |
OK, I'm such a goof, or at least a very UNINFORMED goof. Maybe somebody can learn from my mistake. When we put an addition on our house about 18 months ago we took out a variable rate home equity line of credit. The interest rate was prime + zero or 4 percent. It seemed like a good idea at the time. It was an interest only loan and I vowed to pay more than the minimum which I did -- for awhile. Then the prime kept going up every month. It's now at 6.75 and probably soon to go to 7. That means our payment on a 93K loan has gone through the roof. I have looked into refinancing it several times and never could find anything that made the expense worthwhile. But then the rates kept going up and I kept paying more and more. So two days ago I got serious about refinancing, possibly rolling both first and second loans together which I hate to do because our first has an amazing 4.6 percent interest.I went to Lending Tree and got some pretty good offers but again we would lose some money upfront just for the security of a locked rate.
Then I happened to ask our regular bank, who gave us the line of credit in the first place, if there was anything we could do to get rid of the variable rate and the officer said, "oh didn't anyone tell you? You can convert to a fixed rate AT ANY TIME at no cost". In other words I could have done this six months ago when prime was still under 6!!!
I could kick myself. And then I find out the bank was running a special on lines of credit with interest rate at 5.75 but it ended LAST WEEK. I'm sitting down with an officer this morning to see what we salvage. I think at this point the best we can do is convert to a fixed rate of about 6.5. They will roll the old HELOC as well as our personal line of credit (we owed about 9K with an 11 percent interest rate) into one and our payments will actually be less. We pay around $520 a month on the HELOC but that is about to go up and about $300 a month on the other. We will have to pay about $600 for the combined loan. It's not too bad because we won't have to pay any closing costs or do house appraisals since we are existing customers. Still .. . .
Live and learn, eh?
Jenny

Sorry about this. It sounds like you're getting it all straightened out, though. Once you've got your fixed rate loan, the Feds can raise rates all they want, and you won't be affected by it anymore.
We refi'd recently too, merging our 1st and 2nd mortgages, but in our case, our first mortgage was a lot higher interest than yours (7.375%). Our 2nd mortgage was at 10%. So we were able to get a rate of 5.375% fixed and shorten our merged loans down to a 15 year plan, but still pay the same amount each month. Our closing costs were about $385. It's stressful to go through a refi, especially waiting for any credit checks to be done, etc, but it's worth the stress if you're sure you're going to save money in the long run. With the way the Feds are raising interest rates, I'm glad you're taking care of this now. :-D
Good Luck! :-D
Pat :-D