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Should I Use a Home Equity Loan to Pay Off My Mortgage?

Question: I have a mortgage, but I'm paying higher interest rates than what's available now. I want to refinance, but I don't have a large balance left, and I don't want to pay the hefty closing costs. Is there anything I can do, or am I stuck with the high rate I have now?

Answer: Consider getting a home equity loan with no closing costs. You can use that loan to pay off your primary mortgage, in effect making your equity loan your first mortgage. You even can get the loan for slightly more than your current mortgage balance, and use the remaining money for home improvements.

With your new low-rate home equity loan, you'll still have monthly payments, but they'll be at a fixed rate that is lower than your current rate. And the interest still will be tax-deductible if you itemize.

This method works best for people who don't have a large balance left on their mortgages. If that describes you, stop by a credit union and ask about a home equity loan or line of credit. You'll end up getting the lower rates you wanted, and you'll avoid paying closing costs.