If you are like many, you have used an increase in the value of your home and the equity you have built up as a source of borrowing through a home equity loan. Home equity loans have been attractive because they are relatively simple, flexible, usually only require payments of monthly interest and provide tax benefits.
However, most home equity loans have adjustable interest rates and your rate may have risen since you borrowed with your home equity loan. In fact, you may now find yourself in a position where the interest rate on your home equity loan is higher than the rate on your mortgage or even higher than the rates currently available on new mortgages.
Your Mortgage and Home Equity Loan
Here is a calculator to help you compare your current monthly payments with those from a new mortgage that combines the balances of your existing mortgage and home equity loans.
Interest is compounded monthly. This calculator is to be used for estimation purposes only. The financial institution is not responsible for its accuracy and the results are not guaranteed.
As you look at these results, there are be a few things that you will probably notice:
Even though shorter term Arms and potentially balloon mortgages offer lower monthly payments, it is important that to understand that rates on Arms can increase after the initial period and that the entire balance of a balloon mortgage comes due at the end of the mortgage period. If you are considering an ARM or balloon mortgage, be sure that you would be able to afford a higher monthly mortgage payment if your rate increases. Here is a calculator that can help you evaluate the impact of increasing mortgage rates.
Other Issues to Consider
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