Mailbag Monday: Home Equity Loans - Jean Chatzky - Making money make sense
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Mailbag Monday: Home Equity Loans

suburbHi Jean!

Love catching your show at night, had a question: I have a home equity loan outstanding of $150,000. Interest rate is variable, but has remained at 2.24 percent over the last 6 years. No mortgage on the house just the equity loan. Would you suggest paying it off as I am now, at a rate of $1,000 a month or is there some kind of low fixed rate option I should be looking into? The Loan has 15 years to pay it off as it stands now. Other piece of info, I’d like to purchase a condo in Florida to have for when I retire in 15 years. Wait on that and pay off home equity loan or start a new mortgage for a Florida property while the market is still good? Thanks a ton for any advice you have, your simple THE BEST:)

-Jeff

Hi Jeff,

Thanks for watching! (For anyone who isn’t familiar, Jeff is referring to Money Matters on RLTV. You might even catch a glimpse of my mom!) Let me tackle your question in two parts. First, the home equity loan (which I suspect is a home equity line of credit because you say the interest rate is variable.) Interest rates have no where to go but up. That’s not likely to happen this year based on the indications we’ve gotten from the Federal Reserve, but in the relatively short term they are expected to start to rise. That will increase your monthly payments. So if you’re planning on paying it off over 15 years, locking into a low rate loan would be a smart move. I went to bankrate.com and did a quick search for the best home equity loans (loans are fixed, lines are variable) and found one for 2.99% from Pentagon Federal Credit Union. You may want to start there or go to bankrate and do a similar search yourself.  As for the place in Florida, the question is what are you going to do with it for the next 15 years. If you’re going to use and enjoy it, or can rent it out and cover your costs (or even make a bit), buying now is something to consider.  But if you’re looking to buy simply because the interest rates and home prices are good, I’d wait. Fifteen years is a very long time.  You may decide you’d rather be in a completely different part of the country or experience some sort of life change that doesn’t make Florida the best option. Take the money you’d put toward Florida and invest it to give yourself greater flexibility and options down the road.

 

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