Our First
Should we roll our second home line of equity loan into our first which we are refinancing?
We are refinancing our first mortgage. We have a second which is a home equity line of credit at 7.78% We can probably pay it off in 10 years. Should we roll it into our first and refinance both at 5.20% for 30 years? Would the difference in interest rates offset the extra 20 years of payments?
You do not mention how much you owe on the home equity line of credit, so I cannot tell you the difference between the savings from the lower interest rate vs. the extra years of payment.
Nevertheless, I recommend that you DO roll it all into one mortgage. You can always pay extra on principal if you want to pay off your home sooner, but it would be better, in my opinion, to set aside any extra money into a liquid savings account instead.
Funds you pre-pay against your mortgage will save you money in total finance charges, but the equity you build up that way is equity you cannot get to except by selling your home or borrowing against it.
By comparison, money you set aside in a liquid savings account is always available to you and will earn interest. Eventually, the interest rates could be higher from your savings than you are paying on your 1st mortgage loan, especially if inflation increases in the coming years.
Eventually, if you are a disciplined saver, you will have enough money set aside after 15 years or so to pay off your mortgage in full. In the meantime, you'll have access to an emergency fund if anything happens.
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