Monday, April 30, 2007

Home Equity Line of Credit Option

I was browsing around various Home Equity Line of Credit (HELOC) offerings on the web and looked up the current HELOC offering by our current mortgage lender. Our HELOC has been on the variable interest rate of Prime plus 0.50%, which today equates to 8.75%. Our balance is about $33K and remaining credit available is $30K. We have the line opened since we bought our first house about 3 years ago, and have been paying $75 annual fee for the last two years. Our first mortgage balance is slightly below $200. So our current combined LTV is 76%.

I was surprised to see that the lender is no longer charging the annual fee for lines with balance greater than about $20K. So, I decided to call the customer service. I explained to customer service representative the situation, and before even I told her what I wanted, she asked me "So, do you want me to waive your annual fee?". Certainly I answered, "Yes, of course." The annual fee waiver will be in placed when we receive the first month bill of our 3rd anniversary in a couple of months.

This is a good development since I plan to look around the HELOC offering to lower the interest rate. Our current HELOC imposes penalty if it was closed before the 3rd anniversary. So far, I have found that Citibank current offering is good: Teaser rate of Prime - 2.26% for the first 6 month, and Prime - 0.76% thereafter. I calculated in the first year, we could save about $600. I need to find out how much the closing cost would be. Citibank charges $50 annual fee, requires auto deduction, and charges penalty for early closure (in 3 years). If we are to pay closing fees, the rate could go even lower by 0.25%.

I have looked at E*TRADE, Bank of America, and Wachovia, but none could match Citibank Offering. Last place to look is Costco Services (LendingTree), but the ads says that the lowest it could go is Prime - 0.50%.

Some other thoughts about $75 annual fee waiver
The quick thought that came to my mind after I spoke to the customer service representative is that financial institutions could waive some fees quickly if they want to. I was thinking that "Mmm, maybe they make sufficient profit that they do not hesistate to grant waiver to customers who call." However, they still want the customers (you!) to call them, rather than granting the waiver to all customers. I still remember reading reports about people calling their credit card companies just asking them to lower the interest rate on the credit card balance. (Not) surprisingly, many of the requests are granted. Other possibilities include that given the state of business competition in the U.S., financial institutions will do what it could to keep the customers with them, and waiving fee upon request is one of the ways to do so.

No comments: