Why is HEL rate so much higher than mortgage rate?

[Franco]

30 year fixed: 5.3%
$75k home equity loan: 7.8%

Why is the rate on home equity loans so much higher? Aren't both essentially the same?

 

[HornGrad'01]

HEL's and HELOC's are second lien (second priority in repayment), so are higher risk to the lender (risk premium).

 

[CleverNickname]

If I have paid off my house and I get a HELOC, do I get a lower rate?

 

[K-Man]

Can I refinance to include money for a renovation/addition?

 

[Gardner Barnes]

I have the same question as CleverNickname

 

[zzzz]

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[LennyLonghorn]

Clever and GB, first lien H/E loans are priced less than second lien H/E loans, at least at the bank I work at. They generally aren't less than first lien purchase or refi loans though. I don't know why, but they've always been that way at our bank, probably because we don't charge closing costs on H/E loans, or maybe because they are less likely to get packaged ans sold into the secondary market.

You can get a regular mortgage to refinance if you are renovating or adding an addition, as long as that is what the money is used for specifically. You just have to be within the LTV when the new improved value is taken into account, etc. Normally, there are closing costs associated with these loans, but there are also programs offering streamlined home improvement loans. At our bank, these streamlined programs can be up to $50K, there is less documentation, and the costs are less.

If any of you are interested, I can help you out. Just PM me and I can answer your questions. Hook'em!

Lenny

 

[austintexas]

Just got 7.25% on a HEL thru UFCU. You can use the funds for anything.

 

[madscientist]

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