The Hallmarks, who live in Annapolis, knew the standard options: They could hunker down, stick with their $70,000 credit line and risk further payment jumps in the months ahead.

Alternatively, they could refinance their first mortgage and pull out an additional $70,000 to pay off the credit line.

According to Freddie Mac, the congressionally chartered mortgage investment giant, roughly nine out of 10 refinancings this year have involved cash-outs, many of them to pay off variable-rate credit lines.

They telephoned their lender and asked to convert their variable-rate credit line into a fixed-rate mortgage note with a fixed term.

But the answer was even better than yes: The rate was fixed well below the 8.25 percent bank prime that the floating credit line was tied to, and there were no fees involved.

Both the J.P. Morgan Chase and Citibank home equity groups now let floating-rate credit line customers divide their accounts into as many as five separate “baskets” with different terms and rates, anytime, at zero cost.

For such borrowers, a cash-out refinancing might not be as attractive as a rate lock on the $50,000 credit line balance.

Bottom line on floating-rate credit lines: Even if your bank hasn’t told you about it, check out your fixed-rate options.

Depending upon your primary mortgage amount, interest rate and the size of your credit line, locking in a fixed rate on a credit line you thought could only go up might be your best move. (Read More)

Source: Washington Post

Tags: Mortgage Tips