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HELOC to pay off 2nd home?
Old 07-18-2008, 04:29 PM   #1
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HELOC to pay off 2nd home?

Hello all,
I would appreciate some feedback on this situation. We live in the SF Bay area and have a 2nd home in Sonora, CA (foothills of the Sierras). In order to get our monthly expenses down and pay less interest, I am wondering about taking out a HELOC on the Bay Area House to pay off the Sonora House.

Here's the 411.

Bay area house worth about $950 - owe $400K @ 6.25%
Sonora house - worth about $400 - owe $ 135K @ 7.35%

We have no other debts.

We would take about $85K out of savings and borrow an additional $50K on a HELOC and pay the Sonora House off. We would then concentrate on paying the HELOC off, with a lot more of the payment going towards the principal.

Schwab has a rate of Prime -1.01% and no fees.

It makes good sense to me. Am I missing anything. Any recommendations? Thanks
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Old 07-18-2008, 08:44 PM   #2
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HELOC money is cheaper than your primary. Why not pay down the primary while rates are so low and then shift to pay off the HELOC when rates start to rise?
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Old 07-19-2008, 07:19 AM   #3
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If it was me I would join Pentagon Federal Credit Union. Anyone can join with a donation to the military family association www.penfed.org

You can get a 10 year fixed HEL for 5.49% and 20 year fixed for 5.99%. Get enough to pay off both houses and keep your cash in a diversified portfolio.

You get a fixed rate, lower rate, tax deductible, high liquidity and $0 cost and will be done with the process in a few weeks. Why bother with a variable rate when things are going to begin rising again in the next year or two? When you want to end the deal take the portfolio and pay off the loan.
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Old 07-19-2008, 10:30 AM   #4
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If it was me I would join Pentagon Federal Credit Union. Anyone can join with a donation to the military family association www.penfed.org

You can get a 10 year fixed HEL for 5.49% and 20 year fixed for 5.99%. Get enough to pay off both houses and keep your cash in a diversified portfolio.

You get a fixed rate, lower rate, tax deductible, high liquidity and $0 cost and will be done with the process in a few weeks. Why bother with a variable rate when things are going to begin rising again in the next year or two? When you want to end the deal take the portfolio and pay off the loan.
I second this. I just closed on the 10 yr HEL (at 4.99%) with zero closing costs and paid off my mortgage with it. I dont know how you can beat it.
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Old 07-19-2008, 10:48 AM   #5
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Sell the Sonora house, take $85K out of savings, and borrow $50K on a HEL or HELOC. Apply them toward the SF house.
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Old 07-20-2008, 02:14 PM   #6
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Why refi? Why not just start dumping excess cash on the Sonora house? If you took the $85K out of savings and then paid ~$1000/month on the Sonora house, you'd pay it off in 5 years at your current interest rate and pay about $9000 in interest. If you could put more than $1000/month on it, you'd have it paid off sooner and would save even more in interest.

Refinancing isn't always cheap, though the PenFed loan looks pretty good (wish I'd paid closer attention to that option when we refinanced our place recently), and HELOCs can be a PITA, especially when they're linked to the prime rate. Is there a particular reason you're thinking about refinancing?
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Old 07-20-2008, 04:16 PM   #7
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I have a $50,000 HELOC at 1% under prime {presently 4%} until June 2012 {they will no doubt get rid of it, they've already tried to "talk to me" about it}. I have nothing out against it cause I hate debt, it is for emergencies only.

Personally, I find the whole "betting on HELOC rates" thing to be scary cause I think inflation is running much higher than government *****-pocus is letting on. Go with the locked rate in the above message or do the payoff thing. There is INCREDIBLE peace of mind from owning your home {paid off our primary home last summer after 8 years}.
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Old 07-20-2008, 05:24 PM   #8
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Originally Posted by Urchina View Post
Why refi? Why not just start dumping excess cash on the Sonora house? If you took the $85K out of savings and then paid ~$1000/month on the Sonora house, you'd pay it off in 5 years at your current interest rate and pay about $9000 in interest. If you could put more than $1000/month on it, you'd have it paid off sooner and would save even more in interest.

Refinancing isn't always cheap, though the PenFed loan looks pretty good (wish I'd paid closer attention to that option when we refinanced our place recently), and HELOCs can be a PITA, especially when they're linked to the prime rate. Is there a particular reason you're thinking about refinancing?
2 reasons for refi/paying off sonora house. It may be a false sense of security, but we would like to have a house & property free & clear. We are planning to rent the property and use that toward the HELOC. We have been paying extra on the mortgage for several years.

Also, are HELOCs treated differently than a mortgage? It seems they are basically a second mortgage?
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