"Interest Only Doesn't Mean You Have to Pay only Interest"

“Interest Only Doesn’t Mean You Have to Pay only Interest”

A few years ago, I did a refinance for clients that were referred by their financial advisor. They wanted to refinance their existing mortgage, which I did, at 4% interest rate. They also wanted a $100,000 home equity line, which I got them from the same lender.

At the time we did the home equity line, they only wanted to take out $50,000 and their plan was to pay it off within two years. Sometimes plans just don’t work out.

I got a call from them asking if they could refinance the two loans into one loan, in order to lower their mortgage payment. They currently owe $180,000 on the first which is a fixed rate at 4% and the home equity line is currently at 3.5%, but the payments each month are set up as interest only payments.

I told them that refinancing the two mortgages into one loan would be a larger mortgage payment, so they won’t be able to accomplish the goal.

I recommended that they continue making their first mortgage payment and pay as much principal as possible each month on the home equity line.

I got an email from them, thanking me for my advice and wished they had contacted me sooner. Hopefully they will follow through.

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