Refinance my HELOC? Not Now…
November 25, 2007
Ever since I added on to my house and acquired a large balance on my Home Equity Line of Credit, I’ve often considered refinancing my balance along with my primary mortgage into 1 big fixed-rate mortgage. The main reasons I’ve considered it is because I’ve always thought variable rate mortgages are scary, mainly because the rate can change at any time (depending on the bank, the fed, etc.) and you usually have a balloon payment at the end. Plus the security of a fixed-rate loan can be very comforting.
However, I’ve been starting to be swayed to keep my HELOC intact, at least for now. My main reasons are the following:
- The Federal Reserve Board is lowering rates due to the current mortgage crisis, which directly impact my rate and thus lowering my monthly payment. This extra cash can be put toward a higher interest debt.
- Because of the way a HELOC works (interest calculated daily), every time I make a payment, my next months minimum payment is reduced. Again, the extra money I payed last month can be put on the principal this month! Or put toward some other debt, or toward building my emergency fund.
- With every payment, I free up some of my credit line, to invest elsewhere, perhaps in real estate, or something else. Plus, theoretically, a freed up credit line improves my credit score. A lot of creditors report HELOCs as revolving debt, and as such, more available credit will improve my debt to credit ratio. Now on the other side of the coin, by refinancing, I could eliminate this revolving debt.
I’m not sure my reasoning will stay the same if interest rates rise, but for now, I think the wise choice will be to stay put and keep putting every extra penny I have into paying off this behemoth. I still take consolation in the fact that even with both of my mortgages added up, I’m still well below the (down) market value for my house.
photo by goat_girl_photos
Posted in Mortgage
