Using home equity for mortgage payment

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using home equity for mortgage payment
Posted by: syn Aug 9 2004, 12:10 AM
My FHA mortgage rate is 6.0% on a condominium. I have excellent credit and keep getting offers for 3.5% home equity loans. I have 90,000 on the mortgage but similar units like mine are currently going for 135,000 to 140, 000. I estimate I could obtain about 20,000 as equity and wanted to take the equity to pay down the mortgage since it has lower intrest rate. Is this allowed by law? I just never heard anybody doing this. All the advertisements associated with the equity loan offers are like “pay off high credit card debts”, ” improve your home”, ” take a vacation” etc. but never pay down your high interest mortgage! I thought that might also get me off the PMI. Besides, aren’t home equity loans interest also tax deductable.
I need some insight
Thank you for your time
Posted by: loanuniverse Aug 9 2004, 11:55 AM
It does sound like a good plan as long as you are aware of a couple of things.

1- Some home equity lines require a repayment of principal also so that means that your HELOC payment alone could easily be a couple of hundred dollars. I would think that the best option for you is to go for one that has a draw period that requires interest only payments for a long time. The problem that I see here is that you could end up with two substantial payments every month, and you want to avoid that. If anything pay extra principal when you have extra cash.

2- You are replacing a fixed rate with a variable rate. That low rate offered by the HELOC sounds great as long as market rates are the way they are right now. However, it wasn’t that long ago when prime rate was around 9%.

You might also want to talk to your lender about the PMI cancellation. It seems to me that the additional lien on the property might cause a problem, but I am not involved in residential lending so I can’t help there.

Good luck
Author: Commercial Loan Underwriter