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Does HELOC have to be closed when refinancing the mortgage?

I am planning on taking HELOC on my current house one of these days.  I also plan on refinancing my mortgage in a few months down the road.  When the refinance is taking place, does the HELOC have to be closed / paid offf in full or I can keep it and refinance the mortgage with a potentailly new lender?
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January 05 2011 - US
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You can leave the HELOC open when refinancing the primary mortgage, but the amount you have access to must be considered in the combined loan-to-value and will impact the pricing you attain on the refinance.  In addition, the 2nd lien holder will have to agree to a subordination agreement.  Attaining this agreement will add time to the refinance process and if they won't approve, you won't be able to refinance.

You will be much better off refinancing, then taking out the HELOC.
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January 06 2011
What are the reasons for holding off on the refinance? 

If you take out the HELOC first here are some issues you need to be aware of.

1) Your pricing on the refinance will be affected.  Depending on the LTV/CLTV you will have loan level pricing adjustments (LLPA's) that will affect your final rate.

2) You'll be qualified on the new refinance using the full line amount, even if you haven't taken it all out.  You'll want to ensure that you can qualify.  And Kelly mentioned you'll need to make sure you meet the CLTV requirements since most HELOCs aren't getting done for more than 85-90% I don't see this as an issue.

3) You will have to get a resubordination agreement as Kelly said. It does add time to the process.  I've had resubordinations take anywhere from 72 hours to over 3 weeks.  Thus you may need to lock your loan on the refinance for longer than 30 days again impacting the pricing on your refinance.
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January 06 2011

The answer is not that simple-  First and foremost, you must have quite of bit of equity to get a HELOC especially since you indicate, you have a current mortgage.  Additionally, if you were to get a HELOC now, you may have difficulty refinancing later on due to the fact the new HELOC you attained will need to be subordinated- ((meaning- take 2nd position again.))
I would suggest you refinance first and get a new first mortgage.  You can then apply for your HELOC with no worries or time delays as you will not have to deal with subordinations
In any case-  In order to get a HELOC you will need to have at least 50% equity to get a 20% equity HELOC.

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January 06 2011
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Thank you all for your responses.  The reason that I wanted to get the HELOC was actually to pay the first mortgage by that amount to reach it down to a balance that I can do a favorable refinance. As it may sound, I am not quite familiar on how the HELOC can affect the refinance but based on a recommendation that I got I was thinking that when I use the HELOC money on the first mortgage, I can be qualified for a more favorable mortgage (via refinance) without being impacted by the HELOC.  Putting the subordination concerns aside, is the combined loan-to-value (CLTV) due to both mortgage & HELOC something that all lenders consider or just some of them do? thanks.
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January 06 2011
All lenders will look at the CLTV...not sure who told you to use a HELOC to pay down the first mortgage, unless your first mortgage balance puts you into Jumbo financing and they wanted you to get it to conforming limits.
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January 07 2011

As Eric said you can only get a HELOC if you have sufficient Equity.  If you are trying to pay down a first mortgage to get it under 80% so you can finance it without PMI it's quite possible you don't have enough equity to get the HELOC. If you have enough equity to get a HELOC now you have enough equity to just do a new first mortgage and new second mortgage. Your first mortgage can be at the loan amount that you need to get the favorable financing (your new first doesn't have to be for the full amount of your current first mortgage). Your new first and second mortgage do need to cover the payoff of your existing mortgage.

Here's an example. Let's say the property is worth $200k your existing lien is $167k.  You could do a new first mortgage for $160 (80% LTV) and a second for 10k to cover the remaining balance on the first mortgage and closing costs.

The same applies if you are trying to staying under $417k for a conforming loan and your current mortgage is like $440.  Assuming you have the equity you can do a first mortgage now for $417k and a second mortgage for the balance and closing costs.

I don't see why you'd need to do a HELOC to pay down a first now and then do a new first mortgage later.

Can you give us the balance on your present first mortgage and the estimated value of your home?

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January 07 2011
I certainly hope you take advantage of the sage advice that has been given to you.  In most cases (with enough equity and suitable credit) it will be easier to get the HELOC than the refinance.  One more thing, the minute you attach a HELOC to your property affect your future refinance as a cash out loan...subject to pricing add ons and lower loan to value limits.  I can't think of a good reason to get a HELOC when you know you want to refinance shortly. JMHO
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January 07 2011
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Many thanks; I agree with the comments, especially I had something in mind similar to what Thomas Hall mentioned. my current mortgage is about $467K (fixed) and the house fair market value is about $590K.  we are determined that we are going to sell the house in less than 5 years, so the whole thought behind this is to get a HELOC, pay for the mortgage to drive it to a lower value so I can get at least a good rate ARM (agency arm requires no more than 75%) to minimize interest, if not possible to make it all the way to $417K. I am not sure though if any body does first mortgage & 2nd mortgage so I can avoid doing the HELOC?

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January 07 2011
 
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