 Dear
Dr. Don,
We got in to an ARM home equity loan with a 15-year term. The rate is now 8.25 percent and climbing. Help! Can we find a mortgage company that will refinance an equity loan? We need to get out of this one. My credit is excellent, my husband's is terrible. Please advise.
-- Mary Mortgages
 Dear
Mary,
A home equity line of credit, or HELOC, is an
adjustable-rate loan, while a home equity loan
is a fixed interest rate loan. Bankrate's
national average for a HELOC is currently 8.25
percent and 8.07 percent for a home equity loan.
You're spot on the national average for a HELOC.
You're not likely to improve on that rate by refinancing,
especially with your husband's poor credit history.
You might want to see what happens
at the Sept. 18 meeting of the Federal Reserve
Board's Open Market Committee, or FOMC. There's
a chance that the Fed lowers its targeted federal
funds rate. If that happens, the prime rate that
your HELOC is based on will also go down and you'll
have the lower rate you're looking for without
doing a thing. You can track the prime rate on
Bankrate from its Rate
Watch page.
Depending on how much you owe on your first mortgage, and your home's appraised value, you could possibly pay off the HELOC by doing a cash-out refinancing of the first mortgage. You still will pay a price for your husband's bad credit in the form of a higher interest rate on that mortgage. Try using the Mortgage Professor's Debt Consolidation Calculator to see if the cash-out refinancing makes sense.
Time heals all wounds. It also works
wonders in improving one's credit history -- assuming
that one pays as agreed. Your husband staying
current on his bills over the next 12 to 24 months
would do a lot toward improving his credit score.
Negative information stays on your credit report
for seven years, but it doesn't take seven years
to turn around a credit history.
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