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Started By
Message
Payoff heloc or hold cash
Posted on 9/30/17 at 10:15 am
Posted on 9/30/17 at 10:15 am
Finance guys, I'm seeking input on this situation.. I have a heloc loan with a 40k balance. Interest rate is 5.75%. Maturity date is in 2045. Currently we are making interest only payments a month, which are about $200.
We have the cash to pay this off in full but that will deplete our savings. What would you do? I talked to a financial advisor and he said just keep paying the interests only. But flushing $200.00 down the drain seems dumb
What say the money gurus here?
Thanks
Edit for more info: credit card debt is 0.. still owe 15k on my truck (wife's car is paid off). Still owe 130k on mortgage. 2 kids under 5
We have the cash to pay this off in full but that will deplete our savings. What would you do? I talked to a financial advisor and he said just keep paying the interests only. But flushing $200.00 down the drain seems dumb
What say the money gurus here?
Thanks
Edit for more info: credit card debt is 0.. still owe 15k on my truck (wife's car is paid off). Still owe 130k on mortgage. 2 kids under 5
This post was edited on 9/30/17 at 10:19 am
9
Posted on 9/30/17 at 10:42 am to MorgusTheMagnificent
I'm no expert by far.... but I would pay it off and if you need cash in emergency just take a draw out of your line of credit.
Posted on 9/30/17 at 11:12 am to MorgusTheMagnificent
The question for these things is always "can I beat that cost elsewhere". What's the interest on your truck note? If it's higher I'd pay that off first. Do you have any investments yielding more than 5.75%? If so I'd invest in those first, and so forth and so on.
Posted on 9/30/17 at 11:21 am to MorgusTheMagnificent
How long did it take you to save the cash? How long would it take you to replace savings? How much of a cushion is the $40k (1 month, 6 months, a year)? Without knowing that info, my initial thought is to pay down $30k and keep $10k in savings. Not going to get 5.5% without some risk in this market.
Posted on 9/30/17 at 12:04 pm to dirtsandwich
Y'all are reinforcing What I was thinking. I thought it was strange for a finance guy to to tell me just to keep paying the interest.
Didn't take long to save it... 2 years or so.
The cash sitting in a bank account isn't yielding anywhere near 5%. Think I'm gonna pay it off.
Didn't take long to save it... 2 years or so.
The cash sitting in a bank account isn't yielding anywhere near 5%. Think I'm gonna pay it off.
Posted on 9/30/17 at 2:23 pm to MorgusTheMagnificent
FA makes money when you invest the money with him. Not saying that's his sole motivation in giving you advice but something to consider.
Posted on 9/30/17 at 2:31 pm to MorgusTheMagnificent
Pay off half and keep half in your savings. Keep paying $200/Mo. If SHTF you’ve got a Heloc to pull from.
Posted on 9/30/17 at 3:04 pm to MorgusTheMagnificent
I would probably pay it off. Use a credit card if an emergency pops until you replenish emergency fund. Everyone saying to invest instead is basing it off of the recent bull market (and not their experiences during the tech or housing bubbles) and are not taking risk into account. Are Heloc interest rates that high these days?
Posted on 9/30/17 at 3:59 pm to MorgusTheMagnificent
quote:
We have the cash to pay this off in full but that will deplete our savings.
I would pay off as much of the HELOC as possible and still retain a sufficient emergency fund (especially since you have young kids). Then I'd start knocking out the remaining HELOC balance as quickly as possible. You didn't mention what the interest rate is on the truck.
Some portion of your savings seems to just represent borrowing money at 5.75% so that you can park it in a savings account at (probably) 1% or so. Doesn't compute, ya know?
Posted on 9/30/17 at 8:56 pm to Jag_Warrior
Why wouldn't you pay it off? Is it a loan, or heloc? If it's a heloc, then just pay it down, and use it as your savings.
And remember heloc interest is deductible. So if you pay 2200 in interest a year, then you can deduct 550 if 25% bracket. So 1700 in interest is a more like 4.3% interest rate.
And remember heloc interest is deductible. So if you pay 2200 in interest a year, then you can deduct 550 if 25% bracket. So 1700 in interest is a more like 4.3% interest rate.
Posted on 10/1/17 at 9:55 am to Rust Cohle
That's what we did when we bought our new house, made the down payment using our cash savings then just mentally thought of our heloc from our vacation condo as our emergency fund, which we did have to use when the ac and furnace both died within a few months.
Posted on 10/1/17 at 6:26 pm to MorgusTheMagnificent
I would pay off the truck as it likely has the higher interest rate.
Posted on 10/1/17 at 8:43 pm to Quidam65
"Why wouldn't you pay it off? Is it a loan, or heloc? If it's a heloc, then just pay it down, and use it as your savings."
Yes if it's a HELOC pay it off. You will still have the "line of credit" open and use it for emergencies.
Your return will be 5.75% !
Yes if it's a HELOC pay it off. You will still have the "line of credit" open and use it for emergencies.
Your return will be 5.75% !
Posted on 10/2/17 at 12:10 am to Quidam65
quote:
I would pay off the truck as it likely has the higher interest rate
Your credit has to be total shite to have a car loan rate above 5.75%.
Posted on 10/2/17 at 10:14 am to MorgusTheMagnificent
refinance your house and combine your first and second mortgage. once you have closed you can re-open a new HELOC at no cost if you need one and have the equity left.
I run across this quite often in my line of work. Interest only HELOC payments will bite you in the arse when you realize 3 years later how much you have wasted on interest only payments.
I run across this quite often in my line of work. Interest only HELOC payments will bite you in the arse when you realize 3 years later how much you have wasted on interest only payments.
Posted on 10/3/17 at 8:22 pm to MorgusTheMagnificent
If you are still in the draw period, then pay it off. If an emergency comes up you can tap the HELOC for the money again.
Posted on 10/3/17 at 8:31 pm to Decisions
quote:
Do you have any investments yielding more than 5.75%
If he has investments with a guaranteed 5.75%, I hope he shares it with us
I'd pay 200 basis points easy to lock in 5.75% given current interest/inflation rate environment
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