Refinancing An Old Mortgage
REM # F586
By Ilyce R. Glink
Summary: A homeowner has a small balance on their mortgage with a high interest rate. The homeowner and Ilyce cover the options for refinancing the remaining balance.
Q: I have been paying a $20,000 home loan for 25 years at 10 percent interest. To lower the interest on the $5,000 remaining balance, should I take out a home equity line of credit at a credit union for 4 percent interest, or a home equity loan at 5 percent with no fees, or should I charge it to my credit card (which has an interest rate of 5 percent)?
Or, should I leave the loan the way it is? I guess I should have asked you this question 25 years ago.
A: If it makes you feel any better, I have only been writing this column for 11 years, so I couldn’t have helped out 25 years ago.
I hate to see anyone pay more interest than they have to. You’d be a lot better off getting a home equity line of credit at 4 percent and paying off this balance as quickly as possible.
Here's how the numbers shake out:
Your current payments are about $175 per month, with $68 still going toward interest. If you pay off the loan with a $5,000 home equity line of credit at 4 percent, with a 5-year payoff, your payments will drop to $92 per month. That's still a significant savings of $80 per month.
If you continue to pay $175, you'll pay off your loan in 2 years.
I think you should do this as soon as possible, so you can start saving more money.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
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