Question by tennis: Should we roll our second home line of equity loan into our first which we are refinancing?
We are refinancing our first mortgage. We have a second which is a home equity line of credit at 7.78% We can probably pay it off in 10 years. Should we roll it into our first and refinance both at 5.20% for 30 years? Would the difference in interest rates offset the extra 20 years of payments?
Answer by what
No. Why pay and extra 20 years on a loan that would otherwise be paid off in ten years. I would rather you do better.
First, see if you can get a combined 15 year loan at about 5%. Then may be I’d go for that. If not, then go ahead with the refinance on the house only. Secondly, pay off your credit cards as quickly as you can, while still paying on the HELOC so you can release some extra money to pay off the 2nd mortgage when the cards are done.
But on the second mortgage, you concentrate as much as you can scrape together for principle reduction and pay that off faster than the ten years. Some people, not necessarily you, don’t realize you can add to your principle as often as you want during the month, and as much as you want. This decreases that ten year time quite a bit, even if you are paying 2.58% more per year or .215% per month more. It still beats twenty years more in my book.
Know better? Leave your own answer in the comments!
You do not mention how much you owe on the home equity line of credit, so I cannot tell you the difference between the savings from the lower interest rate vs. the extra years of payment.
Nevertheless, I recommend that you DO roll it all into one mortgage. You can always pay extra on principal if you want to pay off your home sooner, but it would be better, in my opinion, to set aside any extra money into a liquid savings account instead.
Funds you pre-pay against your mortgage will save you money in total finance charges, but the equity you build up that way is equity you cannot get to except by selling your home or borrowing against it.
By comparison, money you set aside in a liquid savings account is always available to you and will earn interest. Eventually, the interest rates could be higher from your savings than you are paying on your 1st mortgage loan, especially if inflation increases in the coming years.
Eventually, if you are a disciplined saver, you will have enough money set aside after 15 years or so to pay off your mortgage in full. In the meantime, you’ll have access to an emergency fund if anything happens.
yes you need to roll it all into one monthly payment but i am not a fan of 30 year mortgages when there are all kinds of 15 ,or 20 year terms out there .make sure you get a simple interest bi weekly not the fake ones u know its fake if they charge you an extra fee to get into it or if your monthly payments increase by 2 times the original payments also if its the real biweekly then all debts like credits cards or car payments student loans should be included this should not dramatically affect your payments since this loan is a simple interest. email me for info on how to get into this program.