Released: September 23, 2006

Homeowners end equity line uncertainty

Source: By Kenneth R. Harney, Washington Post (Free Registration)

Andy Hallmark and his wife faced the same financial squeeze now bringing pain to thousands of homeowners around the country: The monthly payment on their floating-rate home equity credit line had risen to uncomfortably high levels - the direct result of the Federal Reserve’s interest rate increases over the past two years.

The Hallmarks, who live in Annapolis, knew the standard options: They could hunker down, stick with their $70,000 credit line and risk further payment jumps in the months ahead. Alternatively, they could refinance their first mortgage and pull out an additional $70,000 to pay off the credit line. That’s what’s known as a cash-out refinancing. According to Freddie Mac, the congressionally chartered mortgage investment giant, roughly nine out of 10 refinancings this year have involved cash-outs, many of them to pay off variable-rate credit lines.

But the Hallmarks decided to try something different—something that at first seemed wildly improbable—and in so doing bumped into an important change going on in the U.S. home equity marketplace. They telephoned their lender and asked to convert their variable-rate credit line into a fixed-rate mortgage note with a fixed term.

“We were totally shocked when [the bank] said ‘Sure, no problem,’ ” Hallmark said. “We had figured there was no way they would let us do it.”

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