House Affordability
Mortgage Payment Points vs. No Points Renting vs. Buying Fixed Rate or ARM |
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| The Purpose of an Escrow Pre-Qualified vs. Pre-Approval Tax Info for the First Time Buyer Last Years of your Mortgage |
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 What if you only have five years to go on your mortgage but your interest rate is far above today's rates? This is a problem that one reader had: About $31,000 left on a 30-year mortgage with five years to go. The interest rate is a hefty 8.5 percent. The options: Continue paying on the current mortgage since most of the payments in the last five years are for principal, not interest. Get a home equity line of credit and pay off the mortgage Get a fixed-rate mortgage for five years. The cheapest option, initially, would be a home equity line of credit, which today carries an interest rate of 5.5 percent in many markets. It's a risky idea, though, since this variable rate could rise just as fast as it fell. So there's no way to tell just how much the interest would be. But if you paid off the credit line like a five-year loan and interest stayed at 5.5 percent in the first year, you would pay $1,566 in interest that year compared with $2,500 by sticking with the current loan. With a fixed-rate mortgage for five years, you might be able to get a rate of 6.5 percent. That would reduce your monthly payments by about $50 and your total interest would be almost $2,000 less. If you had any closing costs to speak of, of course, the advantage would be wiped out. Looking at the numbers, it seems sticking with the current mortgage is probably the best idea since the savings aren't that great compared with the risks and potential closing costs. |
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