Can you use a home equity loan to pay off your house ??

[CTrain]

So I have a 5/1 ARM with PenFed thats due in a couple of years.
By that time, I would owe maybe $80K on the house.
PenFed has home equity loans at 4.99% for up to 120 months.
So by the time my ARM is up, couldn't I just get a home equity loan for ~$50K-$70K and just pay the house off ??
My payments for the 120 months would remain pretty much the same.
Anything that will stop me from doing this ??(don't worry I have great credit).

 

[rivan]

I don't see why not.

 

[JulesMaximus]

Hey pal, you just blow in from Stupidville?

If you take out a home equity loan against your house then it's not paid off.

 

[nakedfrog]

Originally posted by: JulesMaximus
Hey pal, you just blow in from Stupidville?

If you take out a home equity loan against your house then it's not paid off.

But then the ARM is paid off and he's left with a fixed rate loan, without having to refinance.
I'm not sure how this works as far as deducting interest.

 

[Slew Foot]

Youll pay off the home loan, but then youll have the home equity loan to pay off.

I dont think you get to deduct the interest on that one.

 

[CTrain]

Originally posted by: JulesMaximus
Hey pal, you just blow in from Stupidville?

If you take out a home equity loan against your house then it's not paid off.

Damm, listen to yourself before you call someone stupid.

The reason I post this is because I have no clue what my new rate will be with the ARM.
Essentially the ARM will be paid off so I don't have to worry about the NEW rate.
I just have to start paying the home equity loan but that will be fixed at 4.99% for 120 months.

BTW, home equity loan interests are deductable.

 

[ponyo]

Originally posted by: rivan
I don't see why not.

 

[XZeroII]

Yes, you can.

 

[TheSiege]

Yeah I saw this too at my bank, home equity rates are like 1.25% lower then my fixed rate

 

[kranky]

You sure can.

 

[PingSpike]

If HEL interest is deductable...I'm having a hard time seeing how this is a bad plan. The rate is probably lower since it has a shorter term. Find out what the costs to setup the HEL are, if any.

 

[Mxylplyx]

HEL interest is definately deductable. If you can get that rate, do it. I'm pretty sure though that your current mortgage plus the HEL will need to be equal to or less than 80% of your current home value. They wont originate the loan otherwise, since the loan will be initially originated in a 2nd position behind your current mortgage. I dont really know if you can structure a HEL closing like a refinance, and cut the 1st mortgage holder a check.

 

[IHateMyJob2004]

Warren Buffet laughs that banks always seem to find new ways to loose money. Well, I'm sure we will hear in the near future that they arn't maming a profit o nthese lower interest rate home equity loans.

There are also probably some closing costs to deal with. My guess is about $700.

 

[CTrain]

I'm been preparing on how to deal with my ARM when its up and this seems like the best solution since I won't owe that much by that time.
The house is worth over $200K and by the time the ARM is up, I'll owe ~$80K on it so I won't need to worry about LTV.
Credit is very good so I shouldn't have problem getting approve.
PenFed HEL at 4.99% for 120 month
NO closing cost.

Closing Costs: Pentagon Federal will pay all closing costs associated with the Equity or ELOC loan. Should this loan be paid off or closed within 24 months from the anniversary date of the loan closing, the member will be obligated to pay Pentagon Federal the full amount of the total closing cost for the loan.

- Just to be clear. My mortgage lender is PenFed and the home equity I'm taking about is with Penfed also.

So lets say when the ARM is up.
- I apply to get a home equity loan for ~$50-$70K from Penfed. I assumed they are not going to stipulate what I use the loan for.
- I then use the HEL + what ever cash I have on have to paid my ARM in full.
- So now I just have a HEL at 4.99% to pay for the next 120 months.
- My monthly payments will remian pretty much the same.
- Profit ??

Anyway, my only concern will be if Penfed finds out that I use the HEL to pay my home loan off. Wonder if they care.