Heloc to consolidate mortgages?

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Topic Author
annu
Posts: 584
Joined: Mon Nov 04, 2019 7:55 pm

Heloc to consolidate mortgages?

Post by annu » Mon May 18, 2020 1:22 pm

I am trying to help my BIL. He has 2 mortgages, one at just over 4%( for a rental property) and second one for his home @ 3.75.

He has 10 years left on rental( it is 15 years) and 9 years left on primary( again 15).

He has enough equity in his rental or primary homes(only needs to use one of the homes for loan, not both) to get enough money to pay out his two mortgages, and just have the HELOC only.

I also found out there is option for second mortgages as well.

So trying to seek help from forum. What will be best for him to do?
1) HELOC on one of the homes? Does it matter which home? Primary or rental? Do rates vary?
2) second mortgage on primary home? Might get better rate?

Any recommendation would be great help.

bloom2708
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Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Heloc to consolidate mortgages?

Post by bloom2708 » Mon May 18, 2020 1:54 pm

What is the goal?

Most would leverage the rental and try to pay off the primary mortgage. Although some would never pay off either.

Does he need cash out or having trouble making payments? Or just to say one house is mortgage free?

Can the rental cash flow the combined amount? The rate on the HELOC could be the same or higher than the mortgages. HELOC usually is a number over the Prime Rate.

I don't see a requirement for either option.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

Topic Author
annu
Posts: 584
Joined: Mon Nov 04, 2019 7:55 pm

Re: Heloc to consolidate mortgages?

Post by annu » Mon May 18, 2020 3:16 pm

Goal is to see if he can save some money, as atleast 1 mortgage is above 4. Rent covers the mortage payment for rental, but thats about it for now. And yes, ultimate goal is to be debt free faster.

DVMResident
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Joined: Mon Aug 01, 2011 8:15 pm

Re: Heloc to consolidate mortgages?

Post by DVMResident » Mon May 18, 2020 4:38 pm

annu wrote:
Mon May 18, 2020 3:16 pm
Goal is to see if he can save some money, as atleast 1 mortgage is above 4. Rent covers the mortage payment for rental, but thats about it for now. And yes, ultimate goal is to be debt free faster.
Rental: the after-tax rate should lower. The full interest should be deductible on a Schedule E.

This is probably not true for a personal home interests which is subject to caps under the TCJA and has the additional hurdle of overcoming standard deductions. Please take into account taxes.

Your BIL May eek better rates with a refi. I’m seeing 15-years in the sub-3% for primary homes. Rentals should be 0.5-0.75% higher.

Unless your BIL can’t pay his bills, I would give zero weighting to the cash-flow. He took out a 15-year loan and it’s not surprising at all that the gains are illiquid.

Topic Author
annu
Posts: 584
Joined: Mon Nov 04, 2019 7:55 pm

Re: Heloc to consolidate mortgages?

Post by annu » Mon May 18, 2020 5:12 pm

DVMResident wrote:
Mon May 18, 2020 4:38 pm
annu wrote:
Mon May 18, 2020 3:16 pm
Goal is to see if he can save some money, as atleast 1 mortgage is above 4. Rent covers the mortage payment for rental, but thats about it for now. And yes, ultimate goal is to be debt free faster.
Rental: the after-tax rate should lower. The full interest should be deductible on a Schedule E.

This is probably not true for a personal home interests which is subject to caps under the TCJA and has the additional hurdle of overcoming standard deductions. Please take into account taxes.

Your BIL May eek better rates with a refi. I’m seeing 15-years in the sub-3% for primary homes. Rentals should be 0.5-0.75% higher.

Unless your BIL can’t pay his bills, I would give zero weighting to the cash-flow. He took out a 15-year loan and it’s not surprising at all that the gains are illiquid.
Thanks.
He is not worried too much about cash flow, but I suggested maybe using equity in one of the homes he can consolidate the 2 mortgages, and still have a lower rate to pay off.

Looks like it is probably not worth the effort.

Topic Author
annu
Posts: 584
Joined: Mon Nov 04, 2019 7:55 pm

Re: Heloc to consolidate mortgages?

Post by annu » Fri May 22, 2020 6:59 pm

Just last update, was able to get a refinance on his primary with cash out @ 2.71% for 15years..
So he ends up with lower payment overall and saving on ingeresy

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