Mortgage rate spike, should I get HEL instead?

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The recent mortgage rate spike has thrown a wrench into my refi plans. Here's my situation:

Home value ~475k.
Current mortgage: 250k at 3.625% fixed, 26 years remaining.
Recently completed addition, need to repay 0% loans totaling ~90k. Could wait several more months if needed.

My original plan was to refi the full 340k into a new 20 year fixed (3.25 with no cost). But those rates have now spiked to the point where the 20 would be higher than my current 3.625 rate. My 2nd option would be to just take out a fixed 10 year HEL for the 90k, current rate I can find is 3.75.

I have a couple questions.
If I were to get the HEL now,and then rates drop, would a new refi of everything into a 20 year fixed still be considered "cash-out"? Or would combining 2 existing mortgages just be a regular refi?
Is there any info out there to suggest HEL rates will soon rise like regular mortgage rates have done?
Any thoughts on if I should wait another couple months in hopes of the 20 year mortgage rates getting back to 3.5 or better, or just get the HEL now?

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Your new lender will generally consider the $340,000 to be a cashout first mortgage whether you do it now or in the future. In general for a Fannie/Freddie loan if there is a 2nd mortgage or HELOC being paid off that was NOT used to purchase the property then it is considered cashout.

How many months do you have left at 0%? If the looming rate change is causing you to lose sleep then pay it off with the fixed loan, and wait for a no-points/no-fees refinance at 3.625% or better at your desired rate with the cashout penalty. (As of today at most lenders a cashout refinance at 72% Loan-To-Value has penalties of around .875% in fees - .250% for the LTV and .625% for the cashout at that LTV - which usually equates to .125 to .250 higher in rate than their best rate quotes.)

Once you have your new fixed rate 1st mortgage at $340,000 in place for 6 months then that loan is considered to be seasoned and another new first mortgage won't have the cashout penalty. If you always let your bank pay all the fees for you, and you wait until the rate is better than your current rate, then it's hard to go wrong.

As an afterthought - what is the prepayment penalty on that home equity loan? Some don't have a penalty but lots of them charge $500-$600+ for an early closure fee so you need to take that into account too.

It is too early to tell if rates are likely to settle down over the next couple of months so you need to decide how much risk you are willing to take on right now.

Thanks for the reply and I appreciate the info about most banks still treating HEL's as cashout.

I have about 5 months left on the 0% cards. The fed potentially raising their rate in December could cause the HEL rates to rise too, so I'm going to start the process now for a fixed rate HEL at 3.75% to clear away the addition debt. It does have a prepayment penalty within the first 2 years of $400, but that won't be too much of a factor if new mortgage rates drop enough. Worst case I keep that to term and leave my 30 year at 3.625. My LTV will continue to drop as well, so the penalty to refi in the future even as cash-out should get a little lighter as I get to 70% LTV or better.

Payment would be pretty close just going with 15 year cashout vs keeping 26 + 10 year hel and rate would be lower for both

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