Q: I have a first mortgage and a home equity line of credit and am wondering whether refinancing makes sense for me.
On my first mortgage, I owe some $9,000 which is at 6.85 percent. I only have about a couple of years left on the loan. As far as refinancing this mortgage, I don’t think anyone would be interested in doing this, and the closing costs would probably negate any savings.
But I also have a $6,000 home equity line of credit which will take me another few years to pay off. The interest rate on the equity line of credit is about 8 percent.
Would it make sense to combine these loans? Could I get anyone interested to refinance a $15,000 loan? What if I took out a little more money, for a total of $25,000 and did some work on the house?
Thank you. I need the advice of an expert.
A: If you only owe $15,000, you might not be able to refinance – and it wouldn’t be financially feasible to do it in any case. You should just work to pay off these loans as quickly as possible.
As you suspect, your only option would be to get a larger home equity line of credit, and use it to pay off the $9,000 and then you’ll have a HELOC at a very low rate (maybe less than what you already owe). But I think the savings would be nominal and probably not worth the effort.
You can talk to a lender and run the numbers to see if it’s worthwhile to obtain a new loan to pay off both of your loans. If you can get a new equity line and feel confident that you can pay it off in a several years and if there are no costs associated with the equity line, and if you can drop the interest rate and save a little money, you might want to try it.
If you wanted to take out more money, you might have to do a cash-out refinance for somewhere around $75,000 to get a lender interested in helping you out. But your home may not be worth that or improvements that you make to your home may not justify that loan, and unless you needed the cash for something specific, I wouldn’t advise taking out a much larger loan and starting the time clock all over again on a 15-year or 30-year loan.
Again, your best bet might be to simply throw all the cash at these loans that you can, and get them paid off as quickly as possible.