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Tuesday, March 10, 2009

Applying for Penfed HELOC

Given all the negative news about layoffs etc, we recently decided to open home equity line of credit (HELOC). After doing some research, we realized that HELOC from Pentagon Federal Credit Union worked out best for us. At the time of opening the HELOC, Penfed was offering prime minus 0.5% which came to about 2.75%.

Opening the account was pretty straight forward. We simply called them and provided the required info over the phone. Basically, they asked info about our jobs, salary, how much credit limit we want and other info. Initially, they told us that most likely there will not be any appraisal required as they can model the prices in our neighborhood without requiring an appraisal. However, a few days after our conversation, we received a letter in the mail as well as a phone call that they require an appraisal for which we will have to pay $290. The letter also indicated the deadline by which we need to contact Penfed to proceed ahead with our application. We called Penfed a couple of times and asked if there was way to avoid the appraisal fee such as if we opened the HELOC for a lower amount but each time, we were told that we will have to pay the fee.

Since we didn't want to pay any appraisal fee, we decided to forget about opening HELOC. However, a couple of days before the stated deadline, my spouse called Penfed again and this time, there was a different customer service rep who told us to contact the mortgage department directly to see if that was possible. Fortunately, the loan officer was very good. She told us that we could avoid the appraisal but our line of credit will be reduced to a lower amount than what we had requested. This was fine with us and we ended with the HELOC account. We received our paperwork shortly afterwards via Fedex, got them notarized and the line of credit was established for us. We also had to call our Home Insurance company and list Penfed as the second mortgagee - the entire conversation with the home insurance lasted for less than 10 minutes, and they automatically sent a letter to Penfed. Within few days of submitting the paperwork, we also received the checks.

The good thing about Penfed is that the entire process was pretty stateforward. I guess, being a member of that credit union as well as having a credit card from them helped speed up the process to some extent. Unless we use the credit line (in which case, we will be incurring interest charges), we won't have to pay fees of any kind. The only fee Penfed said that they will be charging is the closing cost in case we close our line of credit within two years of opening. The good faith estimate gave a closing cost of about $300 but our actual closing cost listed in our closing papers was $275.53 and consisted of the following charges:

Credit Report Fee: $1.20
Flood Determination: $7.00
Quick Close Fee/Title Guarantee: $68
Recording Fee: $46
City/County tax/stampts: $143.33
Total = $275.53

So $275.53 is all we will have to pay in case we close the line of credit before two years. We are planning to leave it open, so hopefully that's something we can avoid. However, having the HELOC does give some sense of security although considering the current circumstances, financial institutions can always cancel or reduce them any time.

posted by Ruby @ 5:46 AM

2 Comments:

At 11:13 PM, Anonymous said…

What I did was draw out the total amount, which was 100K for me. I put the money into two rewards checking accounts earning a bit over 4.5%. Not making much on the arb, but at least the money/equity is out of the credit union and in my control, not theirs. This brought my Fico scores down about 5 points on the average. The loan payments which are interest only for the first 10 years are fully tax deductable and the interest I earn is taxable, so it is very close to a wash tax-wise. But the money is available for emergencies if needed. It is prime minus one percent, so if the rate goes up I should be able to get a better savings rate somewhere also should the Prime go over 5.5% someday, which it willm but not for awhile.
At 6:38 AM, Ruby said…

Actually, I hadn't looked at HELOC that way - I opened it primarily for emergency needs. But your strategy of tapping to HELOC and putting the funds in bank account is something I need to look into. Thanks for the tip!

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