Primary Refinance or HELOC

1 Reply


I'm going down a path and wanted to see if others agree with what I intend to do, or maybe have a better solution that I haven't thought of.

My goal is to lower my monthly outflow of cash and drop some of my high interest debt. By lowering my monthly outflow, I can increase savings and REI. My only other debt (besides rental properties) is a car that I have financed at 2.49%, so no reason to get rid of that debt.

Finances I'm looking to consolidate:

Primary House: I bought a couple years ago with 15% down, paying PMI of around $92. (I have over 2 years left of PMI)

Backyard Loan (new build, so no backyard): I took out a personal 40K loan at 9.49%. Payments about $500 to make math easy. (9 years left)

Option 1:

Cash out Refinance and pull out enough to pay off remainder of my backyard. My rate would be dropped by about 0.3% on my mortgage, so my change of PI payment would be relatively negligible, but I would drop PMI and would have enough to pay off my backyard loan. So that would immediately free up $550 a month and would replace 9.49% debt with 4.25% or better.

Leaning towards this option assuming the refinance fees aren't exorbitant.  It would also allow me to change banks where my mortgage is through, which is a huge plus for me... I hate WF.  I would break even after about 8 months assuming my refinance would cost me about 4K.

Option 2:

Apply for a HELOC and use to pay off loan. Because I would be applying for a HELOC, I'd have to get an appraisal, which would then show that I'm well below 80% LTV, so my payment would drop PMI ($92 savings). Then I would accelerate backyard payment by paying off on HELOC and then aggressively paying back the HELOC (I found that I could pay off in less than 4 years if I didn't drop payments, or could convert to a 5-6% HE Loan and pay it off long term, again dropping payment amount, but stretching out payment).

This mortgage is through Wells Fargo, so I'd have to get a HELOC through them if I wanted to reuse the appraisal (or else I'd have to get two appraisals, once for the HELOC and one to show LTV has decreased). I don't like their HELOC product though verse other companies.

Option 3:

Rate/Term Refinance + HELOC. This would be a hybrid of the two above. The Rate/Term refinance would drop payments by about $230 a month ($92 for PMI + $140 for rate/paydown). Then use the HELOC strategy above to lower the payment, and again aggressively pay that down.

I'd switch banks to where all my other accounts are, but would still cost me a decent amount in fees. Long term, once the HELOC is paid off, I would see $140 less in payments. Which I guess in 10 years wont be that big of a difference...

As I stated above, I'm leaning towards option 1 because it will consolidate all of my personal finances and allow for much more cash flow initially.

Cash out would be good option. HELOC is not good option in your loan scenario.

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