Don’t tap that HELOC

Future-Proof: Navigate Threats, Seize Opportunities at ICNY 2018 | Jan 22-26 at the Marriott Marquis, Times Square, New York

DEAR BENNY: We have a HELOC (home equity line of credit) at a current interest rate of 4.75 percent. We have not drawn on the account. We are 20 years into a 30-year home mortgage with a fixed rate of 8.75 percent and owe about $32,000. Our home is listed on the appraisal rolls at $306,000. We would like to draw on our HELOC to pay off our first mortgage. We understand that the 4.75 percent is not a fixed rate and will be adjusted monthly depending on the prime rate. We also understand that we must pay interest on it monthly and in nine years will have to begin repaying principal. There are no prepayment penalties. It sounds too good to be true that we could pay off our 8.75 percent mortgage loan with a HELOC at a current rate of 4.75 percent. Are we missing something? --Barbara DEAR BARBARA: You raise an interesting issue, one with a number of caveats. As you have indicated, your HELOC has a floating and not a fixed interest rate. Most of these loans have rates that actu...