Susan now has peace of mind knowing her rates are fixed … and as a bonus, she got $60,000 in cash out to invest as a down payment on her next purchase!
Here’s the true story … (name changed for privacy)
During Susan’s strategy session, she expressed her concerns about a big chunk of her primary home financing being on a HELOC (Home Equity Line of Credit).
HELOCs can be enticing because you only make payments on the balance you’ve drawn and, initially, you can take advantage of low interest only payments.
However, these are adjustable rate lines of credit with very short amortization periods.
Why did this concern Susan?
Given that we’re currently experiencing historically low interest rates, it’s possible (some would say likely) that in the future Susan’s HELOC rate could adjust up. Even with caps in place on how high they can go, it’s not much consolation (recent life caps we’ve seen are 18%!).
That’s not the really scary part …
In addition to the rate going up, after the initial draw period (typically 5-10 years), the HELOC converts to being fully amortized over the remaining very short time frame (possibly 10-15 years).
Even in a best case scenario, if her $215,000 HELOC balance stayed at a low rate of 4%, the fully amortized payment over 15 years would mean her payment would go from $730/month to $1,590/month …
That’s a big jump in payment in a single month!
You may be thinking .. Yes, but couldn’t she just refinance before the draw period ended?
Maybe. Maybe not.
Perhaps you’ve seen news about major lenders shutting down lending channels. If you’re a seasoned investor, you may have experienced this first hand during the last housing recession.
But even if later she could qualify for a new HELOC to replace the old one and start the interest only time frame all over again, there’s still the possibility rates would be substantially higher.
A better way forward …
After discussing options, Susan decided to get a new first mortgage on her primary residence and pay off her existing mortgage and HELOC.
Now, she has lower rates locked in for 30 years than what she’d had on both her first mortgage and her HELOC.
Knowing that she would be preparing to buy another investment property soon and would need this down payment, she opted to pull cash out during her refinance too!
Not only this, but after learning our strategies on how to lock in the best pricing, Susan decided to refinance a couple of her investment properties also …
She locked in lower rates on these mortgages as well and is getting even more cash out!
Now, she has peace of mind knowing her mortgage payments are fixed.
Plus, she’s better prepared for her next purchase with more liquid capital available to invest and with the lower rates on these properties, she’s keeping her DTI (Debt to Income Ratio) nice and low so her future borrowing power is solid!
If you’re counting on a HELOC for your current or future financing, it may be time to consider following in Susan’s footsteps …
Reach out to schedule a time to talk soon!