I have a 15 year mortgage on my house which I’ve been paying on for about 7 months. Its fixed at 6.74% APR. Initial amount borrowed was $65,016.24 and now I owe $63,674.81 after 7 months of payments. (my payment is $574.42 per month) My bank now is advertising a home equity installment loan for up to $10,000 at 4.99% APR. The question I have is would it be smart to take out this loan and pay off $10,000 of my original mortgage with the money since it is at a lower rate (4.99 vs 6.74)? In other words I’m not looking to use the money for anything other than paying off a large chunk of my mortgage in the hopes of saving some money over time. ps. I’m pretty sure there are no ‘closing costs’ involved with the home equity loan.
It can be a good idea "if" you can pay off all of the $10k before the 4.99APR teaser rate expires – understand that you will still have to make your regular $574 payment + $188 per month to pay off both loans (if the teaser rate is good for 5 years, more if the teaser rate is shorter than that), your first payment doesn’t go down, so if the $188 will squeak you, then bad idea.
What you COULD do, is take out the $10k at 4.99, invest it in GMAC demand notes @ 6%, and then take the tax benefit off of the loan interest and pocket the difference – so you make an extra 1% off of your money, no loss, and if you wanted to, you could make that $188 payment off of the demand note each month!
It can be a good idea "if" you can pay off all of the $10k before the 4.99APR teaser rate expires – understand that you will still have to make your regular $574 payment + $188 per month to pay off both loans (if the teaser rate is good for 5 years, more if the teaser rate is shorter than that), your first payment doesn’t go down, so if the $188 will squeak you, then bad idea.
What you COULD do, is take out the $10k at 4.99, invest it in GMAC demand notes @ 6%, and then take the tax benefit off of the loan interest and pocket the difference – so you make an extra 1% off of your money, no loss, and if you wanted to, you could make that $188 payment off of the demand note each month!
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