Refinancing a HELOC

So, it’s my first post here, and I’ll hopefully be adding more as the ideas come to me.

One thing I thought I’d introduce here is my experience with refinancing a HELOC – a home equity line of credit. This was used as a ‘piggyback’ way of getting in to our current house with only 5% down. The first 80% of the loan was a traditional mortgage, and the remaining 15% was a HELOC. Seemed OK at the time, but in the fine print (and I normally read this stuff, but must have missed it!) the HELOC is variable, adjusting every month. The 5% rate was ‘introductory’, but only for one month. Since then, the rate has gone to 8.25%, and I’m not a happy camper about that. Yes, it’s my own fault, but now that I’m here, what can I do?

I met a loan officer last week, and we discussed that I could possibly refinance through them at no cost. The catch is there’s a $500 fee if you close the account in the first year. Now frankly, we *might* be moving again in the next year, but this would be a reasonable price to pay *if* the interest rate was low enough. She’d told me it was 5% fixed, which seemed too good to be true. It’s a local credit union, so perhaps they play by somewhat different rules. I figure If I can save more than $50/month with no closing costs or fees, it’s certainly worth it.

The only other issue I’ve got to determine is if I have any penalty in my current HELOC for closing it early (just got in in January!). The current mortgage has prepayment penalties of something (don’t know what offhand) if I pay off more than 20% in any one year.

Anyway, I’m planning to meet with the loan officer tomorrow night and I’ll post here to let everyone know about my experiences, pitfalls, things to avoid, and things to look for when refinancing a HELOC.