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Should I pay off my mortgage with HELOC?

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Should I pay off all or most of my mortgage payment from the HELOC. I have a 15 yr 5.375 fixed mortgage. I have 12 years left. Right now my payment goes 50% to principal and 50% to interest. I also have a HELOC which is below prime (2.75%, 20 year, 10 year draw). If I pay off all or most of my mortgage from the HELOC, my monthly payment goes down a lot and also total amount paid goes down. Should I do it?

I am worried if my FICO score is going to be ruined. Also, I plan to get new mortgage to buy a place since I got married recently. My goal is to reduce monthly payment and prepare for a new mortgage. Is debt in mortgage vs HELOC treated differently by FICO? Any suggestion will be great help. Thanks in advance … DB

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  • +1 Votes Thumb up 1 Thumb down 0

    ericabiz on May 31, 2010

    Hi!

    I notice you mentioned that you are planning to buy a new place. If you’re not planning to live in this house, your wisest choice would be to sell it and use the money to buy your new place.

    I would not put the money in a HELOC. Interest rates are historically low; they have no place to go but up, and you risk that in a HELOC.

    HELOCs are counted as revolving lines of credit in your FICO score, so tapping it could lead to a drop in your credit score.

    I would strongly recommend not paying off the mortgage with your HELOC. I would also strongly recommend that you sell the house you have now if you do not plan to live in it, especially if your alternative is being a first-time landlord. There are many equity investments that are far better (and less risk) than renting out a house.

    -Erica



  • +1 Votes Thumb up 1 Thumb down 0

    JoeTaxpayer on May 31, 2010

    Erica is right.

    The fact that you are planning to buy a new house is enough reason to not make any move right now.

    But – with 12 years left on that mortgage, I’d recommend against using the HELOC to pay it off anyway. I don’t know when rates will rise again, but 2-5/8 rise can happen rapidly once rates start to move. If you said you were staying there AND were able to pay the whole thing off in 2-3 years, then maybe it would pay off, but given your circumstance, no way, my friend.

    Joe


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