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Prior to refinancing our ARM to a 30yr fixed, will closing our 0 balance HELOC get us a better rate?

Our banker told us no, but a mortgage broker told us it would be best if we closed the HELOC.  We no longer need to draw on it, so that is not an issue.  We just want to know which answer is correct.  Thanks!
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September 29 2010 - Los Gatos
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Answers (10)

They could BOTH be right. If the combined loan amounts of your 1st mortgage and your HELOC is low enough, it won't make a difference to your rate. If you no longer need the HELOC, your broker could be right in saying it would be best to close it. It would make your refinance smoother and not all HELOC lenders will easily subordinate their loan. BEST is a tricky word.
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September 29 2010
The payment used to calculate the debt ratio will be higher than the note rate and interest only payment because it is not a fixed rate loan. Most will calculate a higher payment than the P & I payment using the full credit line amount regardless of the balance.
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September 29 2010
Les is correct.  Lenders will factor in the payment of the HELOC as if you the entire amount were being used.

It's best to close it either before or during your refinance.  In order to save on reconveyance fees have your escrow officer request a payoff demand and closing statement so it can be filed at the same time as your new loan.
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September 29 2010
In the current underwriting environment, some lenders assess a payment equal to 100% of the HELOC payment be counted in your payment schedule. So if you owe $100,000 at 4%, the lender will assume the entire balance is outstanding, and that the monthly interest payment of $333.34 be included in your debt calculation.

It might be a prudent move to close the Heloc, have it reconveyed and off your title report before you apply for a loan. 
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September 29 2010
If you have a zero balance with credit available, I would listen to your broker.
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September 29 2010
I would talk to the person that is assisting you with your refinance. They will have seen all your documentation and give you the best advice(hopefully).
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September 29 2010
Great answers! -

If the HELOC is a non factor close it out. Otherwise get ready for subordination hell... even if you have a zero balance.
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September 29 2010
What it will effect is your ability to lock in a rate.  If you leave it open, it will need to be subordinated and that can take time.  May make the difference of a 30day vs a 60 day lock or not locking into a rate right at the beginining and being at the mercy of the market.
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September 29 2010
Benjamin is correct. If you want to know if it affects pricing, state the current 1st mortgage balance, the credit limit of the Heloc, and the estimated home value. 
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September 29 2010

If the HELOC isnt closed, even if there is no balance, the total possible line of credit is used in calculating the CLTV so it technically does effect your loan.

The amout that your pricing is changed depends on the credit score and exact CLTV.  Sometimes it doesn't make a difference if you have a high credit score and low CLTV.

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September 29 2010
 
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