What would you do ? Re-fi question

[indoman]

Looking to reduce overall debt on 1 & 2nd mortgages.

i've currently got a 2nd mortgage (equity line) that has been max'd out and we've been paying interest only on. not making any headway.

i can reduce my interest rate from 6.25 to 5%...maybe lower on a re-fi.

i'm considering combining both at the lower rate so i can start to pay the overall debt down. my payment on a combined loan is about $100 more than what the 1st mortgage is.

Would i be better off just taking an extra $100 bucks everymonth from my budget and pay down the principal on the 2nd mortgage?

the fact that it is an equity line and not a loan has me a bit confused on the best approach to take. feel like i'm not "seeing the forest for the trees" !

[Greebo]

Looking to reduce overall debt on 1 & 2nd mortgages.

What are the current balances and interest rates?

Would i be better off just taking an extra $100 bucks everymonth from my budget and pay down the principal on the 2nd mortgage?

Insufficient data. Need to know the clear "now" picture.

the fact that it is an equity line and not a loan has me a bit confused on the best approach to take. feel like i'm not "seeing the forest for the trees" !

A line of credit is something you can draw on over time (until maxed out). A loan is paid out at one time. LOC's typically have an interest only period (during which time you CAN pay extra to principal you just don't have to), during which time they're adjustable, and then when the draw period ends, they convert to a fixed loan with a payment schedule of both P&I.

Whether you would be better off paying $100 extra a month to the HELOC depends on the now, so when you give the full picture of now - balances and interest on both loans - only then can someone compare to the potential future.

[indoman]

1st 6.25 balance $143k
2nd 6.0 balance $29k
conservative value of the home is $180k

what do you mean by the "now"? The "draw period" on the HELOC?

[Greebo]

1st 6.25 balance $143k
2nd 6.0 balance $29k
conservative value of the home is $180k

what do you mean by the "now"? The "draw period" on the HELOC?

The "now" is what your current loan balances and interest rates are. However, knowing the draw period wouldn't hurt.

I forgot to ask you what your actual payments are on the first mortgage.

So you currently are paying 6.25% interest on 143k plus 6.0% interest on 29k.

If you can refi the entire thing to a 30 year fixed at 5%, that's $172,000. That'll be a 95% loan to value, so you'll have to pay PMI.

The PMI will be about $110/month.
The monthly payment on a $172,000 mortgage on a 30 year term at 5% will be around $925/month.

The *interest* over 30 years you will pay on a 30 year mortgage will be $160399. On the current 6.5% mortgage, if you have 30 years left on it (unlikely) your interest would be $182,000~, so just on the primary you'll save $20k in interest alone.

Meanwhile on your interest only heloc you're paying $1,740 a year in interest only payments, which if the draw is 10 years, that's another $17,400. Right now you're paying $145/month to interest, if i'm not mistaken.

Now if you pay $100 extra on principal on the heloc per month...at least to start, that puts your heloc pmt at $245/month. Assuming your draw is 10 years, at the time the HELOC converts, you will have paid $13,707.74 in interest and have a remaining balance of $10,559.95. If at that point it becomes a fixed rate 10 year mortgage, you will pay another approx $3,500 in interest.

So at rough glance, it appears that the refi will save you, long term, substantial interest over paying extra on the HELOC now.

[patticakes]

Hopefully you get an interest rate under 5% -- they are out there.

If you can combine the two loans into one go for it. If you can only refi the 1st put the difference towards the HELOC.