Thinking of combining 2 mortgages?

loan-149873_640

Having two mortgages isn’t as rare as you might think. People who amass enough equity in their homes may elect to take out a second mortgage. They might use the money to pay off a debt, send a child to college, finance starting a business, or make a large purchase.

Let’s look at one example: You took out a home equity line of credit 10 or more years ago and during the draw period – the time when you could “draw” on your credit line – you were paying a manageable amount: $275 per month on a $100,000 line of credit.

According to the terms of this loan, after 10 years the draw period became the repayment period – the next 15 years where you have to pay down the loan like a mortgage. But probably you didn’t expect that $275 payment to become a $700 payment that could move even higher if the prime rate increases.

By consolidating the two loans, you could potentially save more than $100 each month and lock in your interest rate rather than watch it escalate if prime goes up. On the other hand, maybe you want to pay the loans off faster and want better terms that will help you do it. How does this type of consolidation work and is it a good idea?

Read more: http://www.investopedia.com/articles/personal-finance/041415/how-combine-two-mortgages-one.asp#ixzz3XKPOc1cj
Follow us: @Investopedia on Twitter