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An individual has a $120,000 30 year mortgage at 6% fixed. This individual also has a floating rate Home Eq
Posted on January 21st, 2009 2 comments
macklesman asked:
An individual has a $120,000 30 year mortgage at 6% fixed. This individual also has a floating rate Home Equity line of credit for $20,000. The current rate on this loan is 8.5%. Only interest payments are required on the Home Equity line. The individual has an increase in discretionary income of $500 per month. Assuming rates will stay constant, does it make more economic sense to pay down the mortgage or the Home Equity loan first?
KURTISOther - Business & Finance 30 Year Mortgage, Current Rate, Discretionary Income, Economic Sense, Eq, Equity Line Of Credit, Home Equity Line, Home Equity Line Of Credit, Home Equity Loan, Interest Payments, Rate Home Equity2 responses to “An individual has a $120,000 30 year mortgage at 6% fixed. This individual also has a floating rate Home Eq”
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It would be better to pay off the HELOC first. The more you pay towards the principle, the lower your minimum payment becomes. If you continue paying the same amount (+ the $500) you will knock that down real fast.
If you pay extra on your fixed rate mortgage, your payment stays the same, just the balance goes down.
If your income changes and you need the extra cash flow, the HELOC payment has already gone down and if you need to get the cash back, you should be able to pull it back out of the HELOC. You can’t take it back out of the 1st mortgage.
Also the HELOC is a higher rate and may continue going up, so the sooner you eliminate that the better.
Good luck,
Greg
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frogandtoadmail January 25th, 2009 at 09:50
I strongly agree with the gentleman above.
Pay off the interest only equity loan ASAP. It will save you a great deal of money.
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vegasb2k January 22nd, 2009 at 05:13