Real Estate and Home Mortgages - should we pay off 2nd home with HELOC?
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Dave4242
12-21-08, 09:11 AM
We purchased a second home in Dec 2006 with a 30 year fixed mortgage at 5.875%. We have been prepaying an extra $1000 per month on the principal. The interest alone on our monthly payment is $1800.
At the time that we purchased that second home, we took out a HELOC on our first home, which is at prime-1%. The HELOC currently has a $0 balance. We have about 80% equity in our first home, which has a 15 yr fixed mortgage at 5.125%.
I was thinking about paying off the mortgage on the second home with our HELOC. We would be paying 2.25% as of January 1. This would save us about $1200 in interest per month. If we paid the same dollar amount each month that we are paying now, we would be putting over $2000 towards principal each month.
Of course, the risk we run is if rates start to increase dramatically. I am hoping we could get 2-3 years with the low interest rate and then just pay off the HELOC.
Does this make sense? We actually could completely pay off the second home at this point but then would be totally cash-poor so we would rather not do that at this point.
Thanks.
Dave
At the time that we purchased that second home, we took out a HELOC on our first home, which is at prime-1%. The HELOC currently has a $0 balance. We have about 80% equity in our first home, which has a 15 yr fixed mortgage at 5.125%.
I was thinking about paying off the mortgage on the second home with our HELOC. We would be paying 2.25% as of January 1. This would save us about $1200 in interest per month. If we paid the same dollar amount each month that we are paying now, we would be putting over $2000 towards principal each month.
Of course, the risk we run is if rates start to increase dramatically. I am hoping we could get 2-3 years with the low interest rate and then just pay off the HELOC.
Does this make sense? We actually could completely pay off the second home at this point but then would be totally cash-poor so we would rather not do that at this point.
Thanks.
Dave
Speedwrench
12-21-08, 04:31 PM
my response is do your best to pay off the first house (assuming you are living in it) and then jump all over the second home to pay it off, that way if the economy takes any more of a dive your first home is safe. I assume you bought the second home as an investment? other wise why have two homes with the headaches of maintaince and payments?
life begins when the kids leave home and the dog dies
life begins when the kids leave home and the dog dies
djcheez
12-26-08, 10:33 PM
yes makes sense if you have sufficient assets to pay stuff off if need be. If your tolerance level is high enough to take on an adjustable loan, then it could pan out and save you lots of money. Rates should stay low for the better part of next year. However, once it turns, it will turn quickly and rates will go up very, very fast. Be prepared as that heloc can get high, quick. Also, investment homes are much harder to refinance if you have to go back and pull money out of that one again. If it is a true 2nd home, refinancing shouldnt be a problem.