HELOC HellIn today’s market many people are starting to feel the pressure of having to make those high and forever changing Home Eqiuty Line Of Credit payments.  The prime rate right now is at 8.25%, and we can finally thank the Fed for not adjusting the Fed Funds rate the last few times they’ve met. But with an ever changing economy and market, it’s still an uncomfortable feeling to have.

So How can borrowers get out of a HELOC hole?

Prepay the loan. If they have the cash, they could pay off the loan immediately. If it’s less than three years since taking out the loan, however, they would probably incur a penalty of between $350 and $500. That’s probably worth it, especially for a large loan.

Take a cash-out refi. Refinance the primary mortgage and pay back the full amount of the Heloc. Rates are a couple of points lower on a 30-year fixed rate today than on a HELOC. Application fees, title search and insurance and other expenses will increase the total debt but monthly payments may still be lower than the blended total of the old primary mortgage and the Heloc. Plus, with a fixed rate, borrowers know exactly what their payments will be.

For borrowers with low rate primary mortgages, however, this is not recommended; they would be refinancing at a higher interest rate. Currently, 30-year fixed rate loan average 6.11 percent.

Switch to a fixed rate home equity loan. Unlike HELOCs, home-equity loans are usually fixed-rate loans. They don’t cost as much as a mortgage refinancing to execute but there still are some closing costs. Plus interest rates run a point or so higher than for 30-year, fixed rate mortgages, but that’s still a savings compared with Helocs.

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