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Refinance misstep costs homeowners low rate

Benny L. Kass

Housing Counsel

5:35 PM EDT, November 1, 2012

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Q: A mortgage broker advised us several years ago to split our mortgage into a $400,000 mortgage and a $100,000 line of credit (we had $300,000 total available on the home equity line of credit.

A few months ago, we refinanced our $400,000 mortgage with our current lender. (Our house is assessed at $900,000.)

We asked our lender if we could refinance our mortgage up to $500,000, pay down the $100,000 drawn on the HELOC, but still keep the line of credit with the HELOC lender open, and our lender said "yes."

We have now learned from our HELOC lender that our line of credit has been closed.

Apparently, our lender was supposed to do paperwork with our HELOC lender to keep the HELOC open, but that was never done.

Our former HELOC lender said it can't reopen the HELOC because the "lien has been released," and that we just have to reapply for a new HELOC.

Our interest rate was in the 2 percent range, and now the quotes to get another HELOC with the same lender are closer to 4 percent.

We were counting on the line of credit for a home improvement project, and now we have to apply for a new one.

Our home improvement plans are in jeopardy now because these higher HELOC interest rates are going to make it cost so much more than we had budgeted.

What recourse do we have against our mortgage lender, who lost us our line of credit with the HELOC lender?

A: Are you sure that your old HELOC was a fixed rate? Most home equity lines of credit carry adjustable rates. Thus, your old one may have gone up over time.

More importantly, interest rates are at an all-time low, so you should shop around for the best rate you can find.

It is my understanding that most banks are anxious to make such loans and will not charge for setting it up, or at least the charge will be nominal.

If you can get a new HELOC similar to the old one, I wouldn't spend time fighting.

However, you can always file a complaint with the Office of the Comptroller if your lender was a national bank.

I strongly urge all homeowners to obtain a HELOC if they have any equity in their home.

You don't pay interest until you borrow on that line, and it's nice to have a checkbook sitting in your desk drawer for that rainy day.

benny@inman.com