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I have a fixed mortgage at 6.5% but my home equity loan just dropped down to 4%. Would it be legal to pay off my entire mortgage using my home equity line of credit? Refinancing wouldn’t do me any good since no one can match the 4% rate. I just want to make sure something like this is allowed and doesn’t run afoul of some federal law or banking rule.

Also, are there any cons to doing this? I’m 10 years into a 30-year fixed.

5 Thoughts on Legal to use home equity to pay mortgage?
  1. Reply
    July 29, 2012 at 8:30 am

    once you take out the loan it is your $ , but the equity will most likely fluctuate, are you sure the 4% apr is not a teaser, prime is at 5.25 %.. I havnet heard of prime -1.25%

  2. Reply
    Doctor Deth
    July 29, 2012 at 9:19 am

    the home equity loan is probably not fixed, so it could somdeay go above 6.5% and the monthly payment may be just as high at 4% because the term is probably only 10-15 yrs, not 30, so you wouldn’t be helping yourself really and your payments could go up in the future more than you can afford – don’t do it – is your amount of HEL actually more than your mortgage balance? It shouldn;t be if you’re only 10 yrs into a 30 yr loan unless you had a ton of equity in the house before you got the current mortgage – the idea is to pay off home loans, not keep borrowing against the house – you don’t to be paying a mortgage when you’re retired do you?

  3. Reply
    July 29, 2012 at 9:26 am

    When I refi’d, my lender gave me a free HELOC at prime minus 0.5%. When interest rates rose, that went up to something like 7.5%. Now that interest rates dropped, it is down to 4.5%.

    Interest rates are approaching an all time low again. So if you are tempted to pay down your fixed rate with your variable rate HELOC, be fully aware of what it might cost and what you would have to do to lock in a fixed rate for your HELOC if interest rates look like they might start heading back up.

    PS: My home loan is effectively a 1st lein HELOC with a fixed rate, and I can borrow back paid principal at a variable rate. The variable rate can be locked in at a slightly higher fixed rate for a fee.

  4. Reply
    July 29, 2012 at 10:07 am

    When the time came to renew our mortgage we opted to make it a LOC instead. The interest rate was lower and I wanted the flexibility of paying just the interest or much more. Our interest rate is pegged to prime and goes up or down with changes in that rate. If we want to we can go in and change it to a fixed rate.

    However we only owe about 10% of the value of our house and we have more than that in investments. This could be riskier with less resources.

  5. Reply
    July 29, 2012 at 10:18 am

    I used “Credit Solution” to settle my loans and improve my credit score.They managed to reduce my loans up to 58% .It’s legitimate.I came across this company on NBC News Special Edition.Check it out here:

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