Pay off second mortgage with cash borrowed as home equity at lower %
Question: Consider the following example: >400K home >10% down >80% jumbo loan at 6% >10% second loan at 7%
>Isn’t it possible to pay off the second loan with cash partially or >fully borrowed as home equity at lower % (say 6%) in order to lower >monthly payments?
>Is this a good idea at all?
Answer: yes, it is a good idea most of the time. And, home equity line of credits (HELOCs) are at 3.99% in many places. Compass banks is at 2.99% for the first six months. then, prime, which will take YEARS in my opinion to get back to 6 – 7%. I took my second AND part of my first and put them in a HELOC. one toerh advantage. I have a $250,000 HELOC. I only borrowed $100,000 or so on it. But, when a great deal comes along, I can write acheck and DO that deal. Unlike a loan, you can borrow on the HELOC, then pay it off, then borrow again, and so on and so forth, many times. That allows you to do some deals without haveing to get a new loan each time. If I can make 20% on a house that I can flip, and hold it for an average of three months, and I’m paying 4.25% (prime right now), that is 1.1% in 3 months, versus 25% profit. Not bad. I’d hate to miss that deal because I didn’t have available funds. the HELOC solves that. I borrow $50,000 to buy the flip, then put back in $60,000 when the profit comes in three months later (estimated numberss) I pay about $500 for the right to use it, and that puts my loan now $9,500 less than before. You can pay your house off a LOT quicker than you think if you do that enough! 
Here’s another thought. I also took about $75,000 on that HELOC and bought tax liens. on GOOD properties that I shall NOT get in foreclosure. Instead, I get 16% on the money. I pay 4.25% and earn 16%. thatis a positive 11.75% on the BANK’S money. I pay it back when they pay me back … plus I get more than the cost, so that too pays it down. I figure that the $100,000 that I put on the actual portion IO needed fo rthe hosue will be paid off in a bout 3 years. that’s how much profit I’ll make off the $250,000 as I use it when deals come up. Over three years. Money that is not mine, money I don’t have, but equity in the house being used by me. ANYONE can do the tax liens. They are not hard to buy. Doing flips may be tougher to find, and are. But, tax liens are sold here in February, and I buy what I want, all at 15 – 16%. And using the 4.25% money. Others should do that too, and make the spread. It is extra income to be had.
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Filed under: Home Equity Loan
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