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I currently have a home equity loan with a balance of about $164 000 at 3.25%. It is set up as interest only, about $450 per month. The house is worth about $400 000.
I sold a piece of property last year and paid off the primary loan.
I am currently religiously paying off the principal at $500 twice a month.
The interest rate on the home equity line has not gone up in a long time. I check it every day.
I am 62 years old and have a pension fund that took a hit, but is recovering.
Should I convert the home equity loan to permanent financing?
Edited to add: my credit score (and my spouse's) is over 800 and the only other debt is a car loan we have had only a few months. We pay off credit cards every month. We do not plan to move in the next 5 years. Spouse is self-employed and never plans to retire. I work part time in his office.
Last edited by suzy_q2010; 07-09-2010 at 06:41 PM..
Reason: see post
At these rates, yes... sooner or later the index on your HELOC is going to increase, and you'll be paying 6-7% interest rates, which aren't bad, but when the alternative is to get a fixed rate in the 4's you'll be kicking yourself at the opportunity that was missed. Only exception would be if you can pay it off in the next 4-5 years or so, as then the lower interest you are getting now would average out with the higher interest rates later to give you a blended rate right around what you could refinance into now... but at $1k/mo you'd still have 13+ years to go. Since you are already paying more than the interest only payments the conversion to principal + interest payments shouldn't cut into your budget anymore than paying the $1k in principal + $450 in interest each month does.
At these rates, yes... sooner or later the index on your HELOC is going to increase, and you'll be paying 6-7% interest rates, which aren't bad, but when the alternative is to get a fixed rate in the 4's you'll be kicking yourself at the opportunity that was missed. Only exception would be if you can pay it off in the next 4-5 years or so, as then the lower interest you are getting now would average out with the higher interest rates later to give you a blended rate right around what you could refinance into now... but at $1k/mo you'd still have 13+ years to go. Since you are already paying more than the interest only payments the conversion to principal + interest payments shouldn't cut into your budget anymore than paying the $1k in principal + $450 in interest each month does.
Thanks, Shane. I was hoping you would see this!
That's kind of what I've been thinking, too.
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