Home Equity Loan to Pay off MortgageHome-equity loan to repay the mortgage
With a Home Equity Loan to Pay Out Your First Mortgage
If you don't know, there is a tendency for many to be possessed by the notion of repaying their mortgage. It is a great life-long aim for many to repay the mortgage in full. Whatever the reasons, or whether it is a good idea to repay the mortgage early or at all, many individuals seem to be all about it, even with mortgage interest rates near all-time lows.
Luckily, there are many ways to cut the mortgage in order to cut the maturity from 30 years to 15 years or even less. An established method is via a Home Equity Line of credit (HELOC), but the biggest disadvantage you will always be hearing is the fact that variable interest rates are variable interest rates.
You are bound to the key interest which is currently at a low level of 3.25%. To put it another way, it is a little dangerous to go with a HELOC in an increasingly interest driven market, especially as most home owners today already have interest levels in the high 3% area.
So, I came to the thinking of an alternate that is maybe safer, yet still taps out a great deal of the mortgage interest while allowing their mortgage to pay off slightly quicker if they want. By taking out a home equity loan, you get the best of both worlds. A home equity loan is the best of both worlds. a home equity loan is the best of both worlds. Low interest rates and fix interest rates.
However, the biggest disadvantage is that the payback time is likely to be much faster if you want to get a low interest charge and cut interest. So, instead of a 25-30-year loan maturity that you would see with a HELOC, you might consider a five-year maturity. Currently, I have seen that home equity loan rates are set at 3. 25% with 60 month conditions on loan sums from $10,000 to $400,000 without closure charges.
Suppose you took out a mortgage of $200,000 a dozen years ago on $250,000 worth of land. Let us simulate that you want to conserve your mortgage either by re-financing or by making additional repayments. Instead, you could open a short-term home equity loan to repay the remainder of your first mortgage.
With 10 years of payment, you can focus on an unpaid loan of $87,000. When you have taken out a home equity loan for this amount, you could use it on your first mortgage and bring the total down to zero. By disbursing your 15-year loan as planned, you would pay approximately $104,000 in interest over the entire life of the loan.
Yet, if after 10 years you took out a five-year home equity loan at a rate of 3. 25% for the outstanding balance, about $87,000, you would be saving some money and lowering your monthly pay for the outstanding five years. All in all, you would be saving about $6,600 by using the home equity loan to pay off your available first mortgage.
Might not seem like much, but many of these home equity credits have no closure cost, or if they do, they are minimum. It'?s really simple to try out for one. To repay your mortgage even more quickly, you could just make bigger repayments on the home equity loan to meet your old mortgage requirement, or pay even more.
To sum up, this is a relatively easy way to lower the interest cost on your first mortgage without the risks of interest fluctuation associated with a HELOC. If you are still in the early stage of your mortgage, you can make additional capital repayments each and every few months to lower your interest costs and your maturity.
Prior to blogging, Colin worked as an advisor to a mortgage financier in Los Angeles. He' been passionate about mortgage lending for 12 years.