Author Topic: Intro rate on a HELOC of 0.98% - worth using to pay off a chunk of mortgage?  (Read 1289 times)

freedomfightergal

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I was surprised to find two banks offering very low HELOC introductory offers.  One is 0.99% for the first 6 months.

My mortgage is at 4.75%. So I'm thinking it would be worth to take out a HELOC and put in say a chunk of $18,000 into the mortgage from the HELOC and then pay off the HELOC at $3k every month for 6 months to pay off the HELOC in full.

After running the Mortgage payoff calculator, it shows that adding a $18k lump sum now would save me $40k in interest and 10 years from the 30year mortgage. (Total mortgage is just under $100k).

Am I missing something?

The alternative is to save $3k a month into VTSAX/Cash/CD/s. 

My retirement is low at about $190k, so that was going to be my focus this year, but the super low HELOC offer seems to good to pass up.





MDM

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You'll save ~$383 by paying $18K to the mortgage then repaying the HELOC $3008.67/mo for six months, compared with paying $3008.67/mo to the mortgage for six months.

six-car-habit

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 I'd guess you are missing the costs of the origination fee - typically 1% of the loan amount , so that could be a $180 expense there.
 Also the cost of an appraisal possibly -  $ 400 +
  There should be some small cost tied in with modifying title to your house to add the second mortgage and repoting this to your state/ county.
 I just wonder that a HELOC with that low of a rate, could offer the appraisal / orgination fee/ documents fee, etc - for zero cost. ??

katsiki

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I think MDM been me to it but...  Why bother with the heloc?  If you have that much extra each month anyway, just pay it against the mortgage principal directly.

frugaliknowit

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Even if we assume there's no catch (there probably is...), that's working WAY TOO HARD!

Laura33

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My retirement is low at about $190k, so that was going to be my focus this year.

This is your priority.  If you have not maxed out your 401(k)/IRA, you need to do so before worrying about paying down a 4.75% mortgage.  See the investment order sticky.

Boofinator

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My retirement is low at about $190k, so that was going to be my focus this year.

This is your priority.  If you have not maxed out your 401(k)/IRA, you need to do so before worrying about paying down a 4.75% mortgage.  See the investment order sticky.

I'll second this. Maxing tax-deferred assets should be your priority if that isn't somehow the case. And since you have a long investment time horizon, any additional money should be funneled into a taxable equities account. When you get close to retirement it may make sense to start paying down the mortgage at that rate.