I have a first mortgage of 40,000 @ 5.875 % with about 54 months left and a heloc of 59,000 @ 2.99%. I would like to pay off the first with the heloc

Asked by Emjayrow, Los Angeles, CA Sat Oct 29, 2011

Or should I refinance both for 15 years or 30 years with the lowest rate I can get...?

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Ron Escobar -…, Agent, Beverly Hills, CA
Sat Oct 29, 2011
This is a very personal question. It depends on your financial plan, your age, your goals and your risk tolerance.

If you are older (and this is a subjective term) and you have achieved all the financial objectives you wanted to, then you should be into asset preservation mode. If you are a young professional, with young children (like me) then you are probably trying to grow your net worth, and you can afford to take a little more risk and leverage yourself and cash out and invest in income property.

I can tell you a personal story about my aunt. She was 65+ owed about $40K in her home worth about $400K. For years I tried to get her to refinance a little bit out and fix her place up. She could have used a good kitchen and central heating, etc. but she lived in frugality and never wanted to cash out because she wanted to pay her mortgage down to zero. Well... life happens and one day I got that random call indicating my aunt passed away. Within 2 months her son, re-financed the house, cashed it out and fixed it, to then rent it to some unknown individuals... I thought.. wow, she could have had a good kitchen for all those years... and to not have cold nights with a old furnace... (this is a true story)... her son also bought income property with the finance proceeds.

So you have to look at the bigger picture and figure out what you want to accomplish... pay off your home to leave it to the next generation? Grow your net worth? Have peace of mind and not have to worry about paying the bills? give yourself that dream "something" before is too late?

If you are not ready to answer the questions above, you can easily pay your first with your HELOC and save some money due to the difference in the interest rate... the HELOC will likely have that low rate for the next 3 to 5 years, but HELOCs are base on PRIME rate... which is a leading indicator... meaning the interest rate will go up as the economy improves... so you have about 3 to 4 years before it starts going up... and it can go up quickly...

So there... I hope I did not answer a question with a question... but what do you want to do?

Ron Escobar, MBA
Broker & General Contractor
Web Reference:  http://select-realestate.com
1 vote
Roswell Moore…, Mortgage Broker Or Lender, Scottsdale, AZ
Sun Oct 30, 2011
Hi Emjayrow,

With only 5 years left on your first mortgage, it may not "pay" you to refinance, even with a lower rate - you need to look closely at the numbers.

First, what are you currently paying monthly on your 1st mortgage? Are you comfortable with these payments?

Second, what are you paying on your HELOC? Interest only, or are you paying down the balance? Add these two numbers together & try to include a P&I payment for your HELOC.

Third, now find out what the cost will be to refinance both loans. What are your closing costs going to be, including the appraisal, the title fees & your lender costs. Be careful, you may hear things phrased as "it won't cost you a dime out of pocket" or "the only check you write is for the appraisal" when in fact, you will be using the equity you have in your home to pay the closing costs.

Third, what will your new mortgage payment be if you do decide to refinance? Will the difference in payment & closing cost be worth it to you, especially since you have such a short time left on your mortgage & most of that mortgage payment is going towards reducing your balance. It may sound counterintuitive, but depending upon how your numbers work out, you may be better off concentrating on paying off your HELOC first, then attack your first mortgage. You are vulnerable to the market if things shift & short term interest rates rise. Most HELOC's that I am familiar with can adjust monthly, however, they rarely will given the index, usually the "Prime Rate" is normally tied to the "Fed Funds" rate, & that rate does not move too often. That said, look up the "Prime Rate" history & you will see a dramatic increase in rates from the not too distant past to where you are now. Further reason for paying off your HELOC first.

You may also want to contact the bank holding your HELOC to see what is needed to convert it to a fixed rate loan. Many times they can do this at no or minimal cost to you.

I hope this helps you out with your decision. Please feel free to contact me if you have any further questions, I'd be glad to help.

All the best,

Roswell Moore, CMPS
Certified Mortgage Planner
480-422-5095 direct

We are a Direct Lender, Mortgage Bank where we originate, process, underwrite, fund, AND SERVICE our loans, in-house, FHA (starting at a 580 score), FHA Streamline loans (no minimum credit score, no appraisal required) Go Green rehab loans, HomePath, Investor Friendly (10 financed properties), VA, USDA, Jumbo, Conventional, plus, we allow Escrow hold backs!
Web Reference:  http://www.ezAZloan.com
0 votes
James Ryan, Mortgage Broker Or Lender, Leesburg, VA
Sun Oct 30, 2011
Good morning emjayrow,
Although the 2.99% is very tempting, if it is a typical HELOC, that rate is adjustable, and exposes your loan to much higher rates in the future if or when rates go up. I think it is much safer to roll them both into a new first at today's low rates, sort of fix it and forget it!
Best wishes whatever you decide, Jim
0 votes
Harold Sharpe, Agent, Menifee, CA
Sat Oct 29, 2011
lots of options.
you might want to play it safer and do a 15 year fixed loan.
If you do the Heloc down the road could be down and dirty.

Harold Sharpe - Broker
So Cal Homes Realty
(951) 821-8211
California Department of Real Estate Broker License # 01312992
0 votes
Shel-lee Dav…, Agent, Rolling Hills Estates, CA
Sat Oct 29, 2011
Right now the HELOC rate may look more attractive than the fixed rate on your first. The problem is, the HELOC rate if variable, and most HELOCs cap out at 18%. So, if something terrible were to happen in the financial markets, your HELOC payments could go up very quickly and you might not be able to afford that. So in reality, the 5.875% rate is the most attractive, because it is stable.

That being said, refinancing both into a fixed rate mortgage makes sense, if you are looking to do away with the 5.875% AND if you can qualify. Based on your loan to value, credit score and income, you can put yourself in a 10 or 15 year fixed rate mortgage at an interest rate close to your current HELOC rate. Call Chris Fenoglio at MetLife Home Loans 562-799-5799 or e-mail him at cfenoglio@metlife.com. He just did this for some friends of mine and boy are they happy. He is good, fast and inexpensive so take the time and make the call. Once you have full information, you can decide how to proceed.

Good Luck and Dare to Dream.

Shel-lee Davis, QSC®
Certified Distressed Property Expert – CDPE®
Short Sale & Foreclosure Resource – SFR®
Certified HAFA Specialist – CHS®
SSG Pro®
Your Real Estate Consultant for Life
RE/MAX Palos Verdes Realty
424-2HELP12 (424-243-5712)
0 votes
Erik Bottema, Agent, La Canada, CA
Sat Oct 29, 2011

There are different schools of thought on this. Many feel better to pay loans off but many also feel that its not smart since you lose the tax benefits or writing your mortgage interest off..
You can either do what you suggested or you can refi into a longer loan. Rates wont be much better than what you have now since the loan amount is so low.

My suggestion, keep both loans and take the HELOC money and purchase an investment property. There are many homes in socal that are in that price range. They will allow you to make a large positive cashflow with tenants and some nice tax benefits (talk to your accountant).

I am an expert in rental properties. I can help you invest to make money and make your life easier. There are many different options to consider. On several of my REO rentals, I make 20% profit a year on them and have good tenants. It is a very rewarding way to make money. I would be pleased to help you with your search. There are plenty of options for you. I am an honest and down to earth realtor who will help you find something to make YOU and your family happy.
As a bonus, I will credit you up to 1% of the home price back through escrow on any home purchase of over 125,000! This could save you thousands!
Call or text me anytime...

Erik Bottema, Realtor http://www.SoCalCashbackRealty.com
Meridian Capital Real Estate
DRE #01895909, Member SRAR, NAR, CAR

Cell: (818) 426-1700
email: edbottema@gmail.com
PO Box 311, La Canada, CA 91012 - A few hours ago
0 votes
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