I currently have a 30-year first mortgage with 26 years remaining and a home equity line of credit, or HELOC, at the prime rate, less 0.5 percent. Given the low rates, is now a good time to refinance the HELOC into my first mortgage?
-- Joe Jam
A: Dear Joe,
To fold the home equity line of credit into a 30-year fixed-rate refinancing, you'll need enough equity in your home to cover the HELOC plus enough to keep the lender happy with your remaining equity in the house. If the loan-to-value is greater than 80 percent, the lender will want you to purchase private mortgage insurance, adding to the cost of refinancing.
An FHA loan will have a lower equity requirement, but you'll still have mortgage insurance premiums to consider.
You've got a great rate on your HELOC. You didn't mention whether the HELOC has a floor, or minimum interest rate. If it doesn't, the current prime rate of 3.25 percent puts your HELOC at 2.75 percent. As I write this column, the Bankrate national average for a 30-year fixed rate mortgage is 5.32 percent, and the national average for a HELOC is 5.56 percent.
One goal of refinancing is to lower the total interest expense. Another is to make the payments more manageable. A third is to convert an adjustable-rate loan into a fixed-rate loan. While it's not likely that you'll be reducing your total interest expense, you are making the payments more manageable and locking in a fixed interest rate at near historic lows for a 30-year mortgage.
