| Home equity loan avoids fees of refinancing mortgage
Q. I would like to refinance my adjustable-rate mortgage to lock in one of today's low rates. But I don't want to pay a lot of fees for a new mortgage that would actually make my monthly payments bigger over the next year. Refinancing would cost thousands, which seems like an awful lot for a loan of only about $80,000. What should I do? A. You might consider a home equity loan instead of an ordinary mortgage. Many home equity loans are unusually attractive now. Yours is a dilemma that confronts many homeowners with adjustable mortgages, or ARMs: They may be happy with the low interest rates they're paying today - in many cases only 4 percent or so - but they worry their rates will rise in the future. It would be nice to lock into a low fixed rate, but refinancing fees can total thousands.
The Fed is on your side
Since the Fed rate affects how much consumers pay on credit card debt, home equity lines of credit and auto loans, consumers' monthly debt obligations should slide along with the rate cut. For home owners with home equity lines of credit, it shouldn't be long before they see lower monthly loan payments. "That rate will drop three-quarters of a percentage point fairly soon," said Holden Lewis of Bankrate.com. "Probably in about two billing cycles." The Fed's dramatic rate cut - its largest since 1984 - won't do much to help consumers with their credit card debt, however. According to Bill Hardekopf, chief executive of LowCards.com, credit card issuers may choose to lower their annual interest rates by three quarters of a point. However, for a balance of $5,000, that amounts to only $3.13 a month.
Ready To Consolidate That Debt?
IF YOU'RE A homeowner saddled with debt (and we're talking about bad, high-interest debt like the kind you pile up on credit cards) then Alan Greenspan has offered you an escape route. How so? Well, while credit-card interest rates have become increasingly immune to Fed rate cuts (with the average fixed-rate credit card now charging 13.5%), home-equity lines of credit, or HELOCs, have fallen below 4.0%. That's one of the lowest rates we've seen since these products first became popular back in the mid-1980s. And better yet, that rate is before you consider the tax break on your interest payments. Indeed, from a pure number-crunching perspective, consolidating high-interest, nondeductible debt into a HELOC or a home-equity loan, or HEL, is a no-brainer. Of course, your home is the collateral for such a loan, and foreclosure could leave you bunking down in Mom's den.
|
