Question by Oldster: Should I payoff my mortgage by writing a line of credit check?
My mortgage rate is now 5.5% – line of credit is only 3.5% – but there is only 2 years left on line of credit; I think I can refinance at that time if needed; but my plan is to payoff within 2 years.
Answer by Venita Peyton
If you’re close to paying off your mortgage now, it should only be principal. What’s your rush? You won’t really be saving much money – especially if the line of credit is adjustable. You’ll still have to handle your real estate taxes and insurance.
Know better? Leave your own answer in the comments!
Have you ever considered re-financing your mortgage?
30 year rates are at 3.98%
15 year rates are at 3.26%
Granted, there are closing costs, but it sounds like re-financing would save you money in the long run.
Remember that mortgage interest is tax deductible.
A line of credit may not be.
Mortgage rates are predicted to drop even more.
Just in case you want to build some equity in your home so you can re-finance more easily.
Pay very careful attention to how mortgage payments are amortized. During the first few years of your mortgage over 90% of your payment is credited to interest. Likewise at the end of your mortgage term the reverse is true – most of the interest was paid years and years ago.
Call the mortgage company first and ask for a buyout figure. Divide that figure by the number of monthly payments remaining to see what portion of your monthly payment today goes to principle, and what portion to interest. If at the end of your mortgage your effective interest rate will be well below the line of credit.
You don’t know for certain that your can refinance in the future. Market can change, you could lose your job, your health could change. Why paint yourself into such a corner?
Well, seeing that your line of credit interest is NOT tax deductable, that would be a pretty dumb idea.
Then again, if you don’t need the tax credit, go for it.