Best Next Move? HELOC / Mortgage, etc.

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Topic Author
lou4gehrig
Posts: 6
Joined: Tue Dec 09, 2014 12:46 pm

Best Next Move? HELOC / Mortgage, etc.

Post by lou4gehrig »

Here's a summary of our current status:
-Dual income, no kids. age 41 and 38. Both make around $95k/yr.
-House worth around $850k.
-Mortgage is 15 years left on 20 year at 3.125% with $305k left to pay off.
-HELOC we took out a few years ago to do major renovation of the house (bath, kitchen, heating, etc) with $130k left to pay at 4.5%
-We're contributing the max to both our 401k's, IRA's and HSA annually with accumulated $465k between us in all those accounts.
-We have about $15k in savings / checking to pay bills etc.
-We don't have any other debt (cars are paid off and in good condition) and no other plans to put more money in our current home.
-We're mostly frugal and don't live beyond our means and are able to save alot when needed.

-We plan on at least living in our current home / current jobs for 5 years at which time we'd reassess and perhaps move to a lower cost of living area with lower stress (lower paying) jobs. Of course we want to make as much progress as we can over those 5 years and set us up for that.

So with $305k in a mortgage with a good interest rate and $130k in the HELOC with an okay rate (getting worse), I'm looking to maybe combine that into another mortgage. Does anybody have any clear advice here? Is a 5/1 or 7/1 ARM worth it? What about going to a 10 year mortgage? Or should I just refi both into a new 20 year mortage for $430k and just make those payments and put the rest in taxable investment account?

-I think a short term goal would to be to start building a taxable account, which at present is hard while contributing the max to retirement and paying the mortgage and HELOC.
- Also we might want to buy some land in the next 3-5 years and having some money available to do that would be useful.

I appreciate the help in advance. Thanks!
CRTR
Posts: 351
Joined: Sat Apr 11, 2015 1:15 pm

Re: Best Next Move? HELOC / Mortgage, etc.

Post by CRTR »

Lots of unknowns here which make it tough to give a definitive answer. For example, what are you current loan payments (P&I)? We don't know, for sure, what future mortgage rates will be. Don't know how long you will stay in current house. How much can you afford to pay/month. Is your motivation to refinance to lower your total payment so you can save more for the land?? etc etc. So, in light of the above, what I would choose the conservative, lowest risk path. . . .

It doesn't make a lot of sense to me to refinance 70% of your debt to a higher rate loan (any loan you can find now is going to be higher than 3.125%). Cheapest ARM I could find is at 4.0%. The issue here is it seems possible that you'll stay in the house longer past the 5 or 7 years when the ARM rate increases and you will have done yourself no favors. Leave the primary mortgage alone.

As I see it, the main problem is the HELOC and the risk of further rate increases. Simplest solution, most conservative solution would be to convert to standard home equity loan and fix the rate. You should be able to find a rate similar to your current HELOC rate. Given you have plans for another big purchase (land), the sooner you pay off the HELOC/home equity loan, the faster you'll be able to save for the land purchase.
Last edited by CRTR on Wed Sep 19, 2018 8:40 am, edited 2 times in total.
Compound
Posts: 901
Joined: Mon May 26, 2014 1:32 pm

Re: Best Next Move? HELOC / Mortgage, etc.

Post by Compound »

CRTR wrote: Wed Sep 19, 2018 5:26 am Lots of unknowns here which make it tough to give a definitive answer. For example, what are you current loan payments (P&I)? We don't know, for sure, what future mortgage rates will be. Don't know how long you will stay in current house. How much can you afford to pay/month. Is your motivation to refinance to lower your total payment so you can save more for the land?? etc etc. So, in light of the above, what I would choose the conservative, lowest risk path. . . .

It doesn't make a lot of sense to me to refinance 70% of your debt to a higher rate loan (any loan you can find now is going to be higher than 3.125%). Cheapest ARM I could find is at 4.0%. The issue here is it seems possible that you'll stay in the house longer past the 5 or 7 years when the ARM rate increases and you will have done yourself no favors. Leave the primary mortgage alone.

As I see it, the main problem is the HELOC and the risk of further rate increases. Simplest solution, most conservative solution would be to convert to standard home equity loan and fix the rate. You should be able to find a rate similar to your current HELOC rate. Given you have plans for another big purchase (land), the sooner you pay off the second loan, the faster you'll be able to save for the land purchase.
I largely agree with what CRTR wrote.

One additional thought: OP you say you can save a lot when you get serious — how much are we talking? What if you focused your efforts on paying off the HELOC, how long would it take?
Topic Author
lou4gehrig
Posts: 6
Joined: Tue Dec 09, 2014 12:46 pm

Re: Best Next Move? HELOC / Mortgage, etc.

Post by lou4gehrig »

Compound wrote: Wed Sep 19, 2018 5:40 am I largely agree with what CRTR wrote.

One additional thought: OP you say you can save a lot when you get serious — how much are we talking? What if you focused your efforts on paying off the HELOC, how long would it take?
Thanks all for the replies. I think what you and CRTR have recommended makes the most sense (paying down the HELOC and not touching our current mortgage). We can pay down the HELOC within 2-3 years if we just focus on that. Then we'll be in a good position at that point to reassess for the next step / land purchase. Thanks all for the advice.
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