Paying off one Home Equity Loan with another?

Mar 15, 2005 2 Replies
D

I have a home equity loan (5 yr, 4.99%) which is 2 years old, and I would like to take out a larger loan from my main bank, giving me a bit of extra cash and consolidating my loans (I would pay off the first home equity loan with the second). The new loan would be



5 year @ 5.25%, and the monthly payment is not much different. Does it make sense to do this, ie to pay off a loan early and start a new loan, in terms of the overall interest paid? Thanks,


-- Jeff



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A

No it doesn't make sense. By refinancing your existing home equity loan with a new loan with a 5 year term you are setting yourself up to pay interest for a longer period of time, which will mean you end up paying more in interest. The sooner you pay off a loan the less total interest you pay; the longer you take to pay it off the more you pay in interest.

Andy

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