Should I pay off my mortgage with my HELOC?
Considering the potential fallout from the COVID-19 crisis, I am considering paying off my mortgage with my HELOC.
My mortgage only has 3 years left on it and the interest rate is a fantastic 2.6%. The payoff amount for the mortgage would be around $86,000 and the current monthly payment (Principal + Interest) is around $2300.
My HELOC currently has no balance whatsoever, and has about a $230k credit limit with a 4.49% interest rate.
If I were to take $86k from the HELOC to pay off the mortgage, I believe the monthly payment (interest only) would be around $436 per month.
My current job is stable for the moment, and I do have some cash reserves.
I do understand that a 2.6% interest rate is much better than a 4.5% interest rate, however my reasons for considering this is in the event I lose my job or some other financial calamity that may occur. I'm concerned that banks may start freezing HELOCs if the housing market gets hit hard by this pandemic.
My thought is to pay the monthly interest on the HELOC ($436) and add an additional payment equivalent to the principal payment from the former mortgage.
So, what do you guys think, is this a stupid idea?
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this is called Velocity Banking. You have already passed beyond the point where this is beneficial strategy because you are into paying almost no interest anymore on the mortgage. this would have been a great idea in the first 15 years when interest was the bulk of the payment. not anymore. look up "Amortized payment" so you understand how your mortgage interest is calculated.
You have already paid nearly all of the interest during the term of the loan.
I cannot speak to banks freezing HELOC, but My best advice is to stay as liquid as possible during a crisis, even if the sun is shining.
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