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HELOC vs. Refi? To get cash out and minimize fees as well as monthly payment, which is better?

I have a home worth $190-200k with a first mortgage balance of $70k.  Would like to minimize monthly payments, avoid PMI, etc. but also minimize current fees/cost.  I'd like to end up with a total LTV of ~90%, taking about $100-110k cash out.  I don't plan to sell the home any time soon.
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February 23 2009 - Simpsonville
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Answers (2)

Most of the best rates currently seem to be on first mortgages at long term fixed rates. So shop around.

The fees/costs you "save" are sometimes hidden in the rate. There are front end and back end ratios on your loan which affect the amount you're charged up front in fees, how much the broker/banker earns, and ultimately the rate that is quoted.

Also, there are many types of loans. FHA, VA, Conventional and USDA (US Department of Agriculture)-- yes USDA loans money on homes up to 100-percent financing in rural and semi-rural properties. Yours may qualify. Not all banks offer all types of loans-- and if they dont offer a certain type, they're not going to tell you about that option. So a broker who represents many different banks can often give you a better selection to choose.

And don't think that by going to a broker you're overpaying-- because banks lend both wholesale and retain money. And either an outside broker or a bank broker will earn a commission on your loan-- so it will generally not cost you more to go to a broker. I say "generally" not cost you more-- because ultimately it is up to the broker how much is charged in fees.

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February 28 2009
Profile picture for philblum
A heloc is a bad idea now.  You probably won't find one for 90% LTV at a rate that is affordable.  Plus, a heloc will have a variable rate - you do not want a variable rate for most of the value of your home right now!  That is what is causing this the foreclosure crisis!  Think about it - if the rate goes up, you can lose your home very easily!

Your best bet is a fixed rate 15 or 30 year FIXED rate mortgage refi.  I recommend you do not go over 80% LTV if at all possible.  If you do, you will have to pay PMI - it will cost you every month, and it is a waste of money. 

If you absolutely need the 90% LTV, get a refi for 80% LTV now at a fixed rate, then, after closing, go get a HELOC for the other 10%.

I hope that answers your questions, and remember, shop hard for a loan, not all loans are the same.  You can get much better loans if you shop around, compare the monthly payment and the APR.  Those are a better indicator of the value of the loan rather than the nominal interest rate.


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February 23 2009
 
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