Should I consolidate a HELOC loan and 1st mortgage?

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My house is valued at about $ 550k. I have a mortage of $ 172k at 5.85%. I have a HELOC balance of $ 27k at 7.5% (and rising). It will be almost impossible to pay off the HELOC anytime soon. Does it make any sense to combine the two and refinance my house at 6.5% with closing costs of $ 7k? Money is tight, this will save me about $ 400/month.

  1. Reply
    May 17, 2011 at 2:07 am

    I would say that is a resounding ‘YES’. Even if you sale your home soon you can still make a profit considered your home is worth $ 550K, current outstanding loans total $ 199K and closing cost of the new loan is $ 7K which leaves about $ 344K in equity.

    Personally if I were you, I would refinance a new loan for at least $ 221K to get at least $ 15K of equity to deposit in the bank.

  2. Reply
    May 17, 2011 at 2:25 am

    generally, yes … get out of the HELOC … but before you do, check rates and refinancing costs.

  3. Reply
    May 17, 2011 at 3:06 am

    Can’t you get a loan ?

  4. Reply
    May 17, 2011 at 3:36 am

    Refi, yes. But don’t take anything extra out. If you’re paying 6.5% but only earning 1-4% (depending on whether you put the money in savings or a CD), you’re losing money every month.

    The advantage of the refi is that you lock in the interest rate on the HELOC. The disadvantage is that your interest rate will increase. You also need to realize that you’ll extend the length of time it will take to pay both of these off, unless you make more than minimum payments (make sure there’s no prepayment penalty).

    Use the $ 400 you save every month to set up a small emergency fund ($ 500-1000), if you don’t already have one. Emergencies will happen, but they’re a lot easier to take if you’re prepared.

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