Author Topic: Benefits of paying off mortgage with HELOC  (Read 2984 times)

pwe

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Benefits of paying off mortgage with HELOC
« on: November 19, 2014, 03:51:23 PM »
I have a feeling that I am over-thinking this but would like a quick second (or third) opinion.
Situation is this: We have rental house (formerly our primary) that has an outstanding loan balance of $34K. We also have a HELOC on the same property for $50K that is not currently drawn upon. Mortgage is at 5% and HELOC is currently at 4.75% but variable (PRIME +). We are currently paying additional principal on the mortgage that, at current rate, would pay it off by Feb 2016. Checking/saving account, HELOC and mortgage all with same bank.

Should we take $34K from the HELOC and pay off mortgage and continue to pay the same amount to the HELOC each month?We could also 'park' money from the checking or saving account in the HELOC each money to reduce the balance (at least temporarily).

Or should we continue as we are? 


Catbert

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Re: Benefits of paying off mortgage with HELOC
« Reply #1 on: November 19, 2014, 04:25:03 PM »
I would continue as you are.   Interest rates could easily rise 1/4% wiping out your gain.

Villanelle

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Re: Benefits of paying off mortgage with HELOC
« Reply #2 on: November 19, 2014, 04:33:50 PM »
I have a feeling that I am over-thinking this but would like a quick second (or third) opinion.
Situation is this: We have rental house (formerly our primary) that has an outstanding loan balance of $34K. We also have a HELOC on the same property for $50K that is not currently drawn upon. Mortgage is at 5% and HELOC is currently at 4.75% but variable (PRIME +). We are currently paying additional principal on the mortgage that, at current rate, would pay it off by Feb 2016. Checking/saving account, HELOC and mortgage all with same bank.

Should we take $34K from the HELOC and pay off mortgage and continue to pay the same amount to the HELOC each month?We could also 'park' money from the checking or saving account in the HELOC each money to reduce the balance (at least temporarily).

Or should we continue as we are?

Id probably continue as I was, given that it's a very small difference that could easily be wiped out.

I have a HELOC at 2.6% (adjustable) and I did use that to pay off part of my mortgage.  But it is much lower than the mortgage was (5.125 and unable to refi because it is no longer owner occupied) and can only rise 1% per year. So I felt quite confident that I'd have it paid off long before it ever got to be more than the mortgage.  In your case, that isn't likely the case, unless you have a very solid reason to believe you have $34k coming to you in the very near future. 

If you want to hedge your bets, you could pay off some of the mortgage with the HELOC, and then if interest rates look like they will rise, you could send every extra dollar to the HELOC and pay only the minimum on the mortgage.  But even that doesn't seem worth it to me.

Prairie Stash

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Re: Benefits of paying off mortgage with HELOC
« Reply #3 on: November 20, 2014, 12:11:12 PM »
You don't have to do 34K, you could do $5000. Then park money from checking or savings there. The HELOC will float but you'll effectively save 5% interest on the amount you move in.  It won't add up to a lot, but it also won't take much time to do. I use to transfer money on coffee breaks, I probably saved a couple hundred a year for at least 5 years when my mortgage was at 5% (In Canada we have mortgage term lengths, after 5 years I renewed my mortgage). Also you could "park" your entire EF there, an equally valid option.

The important part is to not think of this as an all or nothing scenario. Do what's right for your comfort level.

Gone Fishing

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Re: Benefits of paying off mortgage with HELOC
« Reply #4 on: November 20, 2014, 01:32:54 PM »
Shop that HELOC, you should be able to do better.  Banks will often pick up all or most of the closing costs as well.

frugaliknowit

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Re: Benefits of paying off mortgage with HELOC
« Reply #5 on: November 20, 2014, 01:50:29 PM »
Continue.  The risk/return is not there.

Cheddar Stacker

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Re: Benefits of paying off mortgage with HELOC
« Reply #6 on: November 20, 2014, 02:56:32 PM »
0% interest credit card? I get offers at least once a month and have one in front of me right now.

Check out barclaycardus.com. The offer I got from them was 0% interest for 24 months.