Ok, in May of 2007 I bought my first house. Because we made too much $$ they said we couldn’t do FHA. We ended up getting talked into an 80/20 with 80% being a FR conventional loan for 0k at I believe it was 6.25% (it might be a smidge lower) and about k in an ARM HELOC at prime plus one. I don’t remember the cap, but when I calculated it, it was definintely affordable for us- the cap doesn’t scare me beacuse we wouldn’t have purchased the house if we couldn’t afford it. We actually bought an extremely affordable house (4bed, 2bath, 2000 sq ft 1acre for 8k) and we were approved for somewhere around 0k. We make decent money, our jobs are stable and we have absolutely no debt. My question is I have heard that I cannot refi my HELOC into a fixed loan. I would either just want to lock in the rate on the HELOC (best bet since rate is so low now) or add the k to the 30yr FR mortgage we already have. I have heard 2 things: 1) If we don’t have k in equity in the house then we can’t do it, and 2) you can’t convert a HELOC at all — though I have to read my rider, I haven’t done so yet, just thought of this today when rates dropped.

Does anyone know the truth? Also, how much would it cost to refi something like this. I figured it would be approximately as much as a closing, perhaps slightly less?

Oh yeah and 1 more thing that may factor in. While there is nothing wrong with our house we do want to move closer to work (an hours drive away). As soon as the housing market bounces back, we want to put our house on the market and I’m hoping to at least get 9k for it. That may not be for 2 years or so, but I’m just wondering if it would even be worth it to bother to re-fi if we aren’t planning on staying in the house much longer. We also have a solid offer from the people who sold us the house to buy it back from us at the price we paid for it (I told them to take a flying leap if they think I’m that stupid- I’m not, and I’d rather sit on the house than take a loss, thanks.) Oh and I’m guessing, but I have been told by a couple realtors that I know, that the house is worth about 9k now. (of course that is subjective because if no one is buying then it isn’t worth anything really.)
Oh this is all good news, thanks for the answers. I am going to call around next week after I look over my documents. I am 99% sure we are not upside down on the loan for the simple fact that in NC we aren’t facing the same real estate crisis as most other places. Market is still good here. On top of that I have been watching houses in the area sell and I am pretty sure we’d get more for our house than we paid. Also, we bought it from some desparate people who got transferred, I think the house was undervalued when we bought. Our FICO scores are excellent. Mine is around 750 and BF is around 800. We aren’t in trouble with paying; we could pay three times our mortgage and still be fine, that is why we got a cheaper house. I just want to lock in the rate because I know they are going back up (they can’t go any further down!!!). All I am trying to figure out is how to lock in my rate. I always pay much much more than the minimum anyway. Thanks again, you’ve all really helped!