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Q: My wife and I are retiring in three years. We plan to move west to be closer to our kids and grandchildren after we retire. We owe $220,000 on our mortgage and we’re paying a 6.75% mortgage rate. We missed the chance to refinance when rate were low a few months ago and, even at a lower rate, we aren’t sure if paying a lot of closing costs on a loan we’ll only be on for three years makes sense. Should we just sit tight or are there other options?

A: You can take advantage of a 1st Lien Home Equity Loan. The rate is fantastic and the closing costs are very low. Let’s do some math.

Rate – 3.75%     Closing Costs – $400

Current rate (6.75%) – New rate (3.75%) = $1,427 payment vs. $687 payment = $740 monthly payment savings. $740 × 36 months is $26,640.

Because the Home Equity loan is interest only, you won?t be paying down principal, so you?d need to add back the $7,500 you would have paid your current loan down. You can save a net $19,100.
The loan is tied to the Prime Rate. It will adjust. However, all forecasts point to the Prime Rate remaining low for the foreseeable future. Even if Prime ticks up a full percentage point, or even two, over the three year period, you will still have a lower interest rate than you have now!

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