Why you (probably) shouldn’t combine your mortgage and HELOC loans, especially if your mortgage is nearly paid off and your home equity loan isn’t.

Q: I have 4.5 years left on my mortgage. I also have a home equity loan. Would it be wise to combined the two into one loan?

A: While it sounds simpler to make one payment instead of two, getting a new loan would be just about the worst decision you could make.

At this point in the amortization cycle, every mortgage payment you make towards your primary home loan contains very little interest and is mostly big chunks of principal. So, you’re paying it off virtually dollar for dollar. This means that a $1,000 mortgage payment is probably paying down what you owe on the loan by about $900. Early on in your loan, you paid mostly interest and very little principal, but now it’s the reverse.

It’s hard to imagine another loan product that would benefit you quite as much if the goal is to get your primary mortgage paid off as quickly as possible. Having said that, we don’t know how much is left on your home equity loan or what interest rate you have on that loan. Say you have $20,000 still owing on your equity line and $50,000 left to pay on your home mortgage. In less than five years your home mortgage will be paid off in full.

On the other hand, you will still be paying off your $20,000 loan. You might have a low interest rate on your primary mortgage and let’s say you’re paying six percent on your home equity loan. If you refinance now and get a new home mortgage for $70,000, your new interest rate may be around four percent, but you will be paying off that $70,000 loan over the next 15 or 30 years depending on the length of the term you choose on the loan.

You will pay a boatload more interest on that $70,000 than where you are now. In addition, you will find that any lender giving you a loan will have closing costs to refinance both loans. While we don’t know where you are located, you may pay between $2,000 and $3,000 in lender and title company charges to close the loan.

If you look at if from a perspective of saving money, keeping your equity loan and paying off your mortgage might be a good financial decision for you. You could then take the monthly amount you were paying on your primary mortgage and add that to your home equity payment, which would help pay off that loan rather quickly.

While we think this would be a great move, we don’t know what else you have going on in your life. Some homeowners who ask this question actually need money for repairs to the home, medical expenses, their kids’ education expenses or to pay down credit card debt, and these expenses seem more pressing than paying down the mortgage faster. When these situations come up, we tell people to determine what savings they have, and how refinancing their debts will benefit them otherwise.

We can assume for the moment that your question has some other underlying question about your personal finances. So, if you need to apply those funds elsewhere, and you are prepaying both your mortgage and home equity loan, you could lower the monthly payment to the minimum owed.

When would this be advisable? If you’re paying 20 percent on credit card debt, you should shift all available funds to getting that paid down as soon as possible rather than prepaying a mortgage that costs you only 4 percent.

The same thing is true for student loans (or any other debt that has an interest rate higher than what you’re paying on your mortgage). While some student loans may have somewhat low interest rates, others do not. If you look at your overall financial picture and health, and think about where you can get the biggest bang for your buck, you may decide to deploy excess cash elsewhere.

From our end, your question is a no-brainer if there are no other issues: Simply keep paying the mortgage and home equity loan until they’re paid off. If there’s something else going on, choose the top financial stressor and apply as much extra cash as you can until that situation is resolved.