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R. Klein, EA
R. Klein, EA, Accountant
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We are trying to decide if we should refinance. We currently

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We are trying to decide if we should refinance. We currently have a 15 year mortgage that will be paid off in 2018 with a fixed rate of 5.375% (balance $49,700). We also have a HELOC balance of $80,900 with an annual percentage rate of 4.37%. We would also like to pay off our credit card balance of $14,000. With interest rates so low, would it be possible to combine the two mortgages into one at a lower rate plus take some cash to pay off the credit card? We would like to have the new mortgage paid off in ten years.

fastfile :

Thank you for your question.

fastfile :

Because you have an outstanding Home Equity loan in addition to an existing first mortgage, if you were to refinance, most states allow a maximum of $100K to be used for the purposes outside of purchasing or fixing up your home. In fact, the IRS has a limit of $100K on such use of a home equity type loan.

fastfile :

So if you owe $80.9 + 14K, you will be close, but not over the limit there.

fastfile :

To determine if a refinance makes sense, I can compute the savings....

Customer:

ok, thanks

fastfile :

TO do so, I would need to know the interest rate on the credit cards

Customer:

I will look that up and get right back to you.

fastfile :

And, I would need to know the minimum monthly payments on your first mortgagee, HELOC, and credit cards.

fastfile :

I would also need to know or estimate the costs to refinance your loan and the interest rate you think you will qualify for....these may be estimates.

Customer:

The interest rate of the credit card is 11.24%.

Customer:

I will look up the other information you have requested.

Customer:

First mortgage monthly payment is $1420.20 (principal, interest, and escrow)

Customer:

Heloc we pay $278 plus an extra $400 toward the principal and the credit card minimum payment is $270.

fastfile :

Can you please tell me the escrow amount. We need to take it out of the equation. It will not change on a refi

Customer:

Do you need me to provide the estimates to refinance? We do have excellent credit and the last time I checked our FICO score, I believe it was in the 740-800 range.

Customer:

The escrow amount per month is $445.

fastfile :

Please wait a few minutes while I calculate

fastfile :

Thank you for your patience.

fastfile :

Currently:

fastfile :

Loan 1 to be paid of in 4 years 9 months, with 6841 interest to be paid between now and then

fastfile :

Loan 2 (HELOC) to be paid off in 13 years with 25,431 interest until then

fastfile :

Credit Card paid of in 6 years with 5,255 interest

fastfile :

Refinancing at 3.75% for 10 year term fixed, with estimated 2% closing costs added to your balance (not paid out of pocket)

fastfile :

You will pay off debt in 120 months (10 years) and pay $1475 per month for total interest paid of 29,600

fastfile :

Your current payments (not including escrow) is Loan 1 = 975, Loan 2 = 678 Credit Cards = 270 = 1923 per month

fastfile :

Your total interest due if paid on this old schedule is 37,527.

fastfile :

You save about $8K by refinancing at 3.75%

fastfile :

Hope that helps

Customer:

Yes, very helpful. Thanks! So are there any complications in trying to refinance a HELOC with a first mortgage that I should be aware of?

fastfile :

Some lenders may require you to pay off the HELOC with money in your pocket. Depends on the state you live in. All states require your last refi to have been more than 12 months ago and that you have not listed your house for sale in the past 6 months.

fastfile :

Have a good eveing

Customer:

Thank you!

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