Should I pay to get a higher HELOC balance

Question

My current HELOC balance to spend is $60k. I asked my lender if he can increase my balance given my equity but ultimately can't unless I pay the closing cost fee of $734. Here is his response:

"We can definitely take a look at that for you, however we would have to do a new HELOC. I wish we could simply just increase the current one but unfortunately we can’t. We go up to 80% LTV so if the house appraised at $300,000 and you owe $148,000 we could potentially get you up to $92,000 as long as you qualify with credit and debt to income is <40%. Let me know if you want to get started. Because we are in the first three years, you would have to pay the closing costs back however. They were $734.00."

If they offer 80% LTV I still don't understand how my amount would be $92k. 300,00 - 148,000 = 152,000. 80% of 152,000 = $121,600. I'm probably misunderstanding how these work but why would my increased amount be $92,000 instead of $121,600?

Steve Daddeo · Answer

Hey Ryan - The LTV is measured against the Value of the property.  You got to see how much debt the bank will lend up to first, before taking existing debt into consideration.

So first take $300,000 and multiple by 80% you get $240,000.  This $240K number is how much total debt (HELOC + Existing Mortgage) the bank will consider lending up to.

Step 2, take $240,000 - Existing Debt ($148,000) = $92,000 (New HELOC Increase).

On a side note, shop around for other lenders that are offering HELOCs. I have some in my area where there are no closing costs as long as I keep it open for a year.

Let me know if this helped.

Bill Le · Answer

Hey Ryan — great to see another Richmond investor here! Steve did a great job breaking down the math, so I’d definitely defer to him on the numbers.

Just to add: depending on how long you've had your current HELOC, the closing cost payback is pretty standard. On mine, for example, I’d owe the full closing costs if I cancel or refinance within the first 3 years. That $734 fee seems reasonable if you're planning to tap into more equity and make the most of the leverage.