Use savings to pay off HELOC?

[titan7]

I have a HELOC we used for home improvements, currently have $66k on the loan, I have $70k in savings I was thinking of using the savnig to pay it off. I am currently putting about $1500 per month into savings. 15% of my gross goes into the 401k pre-taxed.

The current adjustable rate on the HELOC is 2.7%. I an not making much more than that on the saving account.

Any suggestions?

The other option I was thinking about was to refi and combine the two into a 20 year. The 1st which is $239k with 24 years left @5.25% fixed.

I can re-fi the two in a 20 year fixed at 5.125%. Shortens the load term and gets rid of the HELOC, well sort of.

Any suggestions?

[kork13]

First, forget combining your HELOC into a refi with your home. You'd be extending the term of your HELOC, thereby paying more for it. If you want to refinance your home mortgage, go ahead and look into it. Run the numbers, and see if it makes sense in your situation. But PLEASE don't combine your HELOC into it... You'd be shooting yourself in the foot.

Moving beyond that....
Allow me to double-check the facts:
A) You have a HELOC with a (currently) 2.7% adjustable rate
B) You're funneling $1500/mo into savings, with a return above 2.7%
C) You want to use savings to pay off the HELOC

Is the HELOC tied to LIBOR or the Fed Funds rate? If to the Fed, don't expect that rate to be increasing anytime soon... My best recommendation would be to keep your savings in place, then take the $1500 you have been sending to savings and instead using it to pay down your HELOC. If you want to dip into savings a little bit, okay... Just make sure you keep enough in there for emergencies (general advice: 6-9 months' worth of expenses)

[cptacek]

In any other case, I would be nervous sending in extra payments to such a large loan. It would take a long time to pay off and something might come up in that period of time before the loan is paid off. (with no interest, it would take over 3 years at $1500 a month).

However, you said you have $70,000 in savings and 15% to your 401k. If there are no other loans and the $70,000 represents enough to live off of for 6 months, I don't see anything wrong with it. And, if interest rates go up and there starts to be a big difference between your savings rate and your mortgage rate, you could reevaluate if you would want to take it out of your savings.

I agree with kork13 about not refinancing the 2nd mortgage with the 1st.

[snafu]

Moving fm 2.7% to 5.12% for 20 yrs. is staggering. You will need to consider your specific circumstances...how secure is your employment, what changes/major purchases are you likely to undertake in the next 3 yrs.

I would funnel income into aggressively paying off HELOC as I am of the opinion that interest rates will need to increase as evidence of inflation is already showing. I would add small amounts fm savings only if your employment is rock solid.

[titan7]

thanks for th advice, I will just keep things the way they are and leave the savings alone and just keep paying the $1500 per month on the HELOC.

I just thought combining the first and second would be a smarter idea. I guess paying that $60k over the next 20 years instead of 3-5 is not as smart as I though.

Thanks!

[Alex_Adviser]

Originally Posted by titan7

thanks for th advice, I will just keep things the way they are and leave the savings alone and just keep paying the $1500 per month on the HELOC.

I just thought combining the first and second would be a smarter idea. I guess paying that $60k over the next 20 years instead of 3-5 is not as smart as I though.

Thanks!

I guess that now to have come to a more logical solution. As you have sufficient savings at this point of time so it would be better that you dont disturb the savings and keep it aside and concentrate more towards paying your HELOC.

[TheColonel]

Refinance your first and second mortgage because rates are so low right now. Because your HELOC is an interest-only payment anyway, you aren't paying anything down on it each month with the regular payment. Combining the two loans will lock in a low fixed rate and your payment will be cheaper on a 20 year loan than your current mortgage payments plus a $1500 principal payment. Once rates start going back up, less of your $1500 will go towards principal on the HELOC.

Going this route will give you a consistent monthly payment and allow you to still put money into savings each month.

[LuxLiving]

Titan 7, may I ask how old you are? and how long out till retirement are you looking at?

Is the $70,000 in a separate savings or is this the 401-K money?

Is the HELOC interest only?