X

It was a mixed bag for home affordability in early 2024. See the income you need to buy a median-priced home in the top 50 metro areas for details.

It was a mixed bag for home affordability in early 2024. See the income you need to buy a median-priced home in the top 50 metro areas for details.

Should I do a ‘consolidation refinance’?

Q: I have two loans; a fixed-rate first mortgage of $165,000 and a variable-rate $201,000 Home Equity Line of Credit at 3.5 percent. With mortgage rates likely to rise in the future, should I refinance to consolidate both of these loans into one new fixed-rate mortgage?

A: You can do it, but given where today's mortgage rates, you'll probably end up raising the cost of your debt, especially if you haven't got the cash to pay points and fees out of pocket to keep the rate at 3.5 percent.

If you haven't got the cash to pay the fees out of pocket, you'll expect to see a higher rate of perhaps 4.25 percent. So while you'll no longer have to worry about rates rising in the future, it will come at a cost, and your monthly payment will probably rise as a result.

You also need to consider whether your new loan will also cost you more due to the need for Private Mortgage Insurance (PMI). If your loan-to-value ratio is above 80 percent, you'll have a monthly mortgage insurance cost to consider in your calculations, too.

In effect, what you are doing is a "preemptive refinance" -- refinancing your variable rate debt to a fixed rate before interest rates rise. It's do-able, and while it will bring you peace of mind, it is unlikely to give you any kind of monetary savings, at least none you can actually count until rates begin to go up... and even then, it will be money you didn't spend rather than money saved, and if you pay costs out of pocket, you'll have to first "save" enough to pay for those costs even before any actual "savings" can occur.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
Please enter a question.
Please enter name.
Please enter email.
Captcha code invalid
Q: How do I find out who owns my mortgage?
FEB 20, 2024
A:

The owner of the loan is most often the "investor" -- the entity who put up the actual funds to make your mortgage happen.

Read More
Q: What loan amount does a mortgage need to be for it to be considered a Jumbo Loan?
NOV 28, 2023
A:

This question used to have a simple answer, since there was a "bright line" definition -- the conforming loan limit....

Read More
Q: What does the term ‘conforming’ mean?
SEP 21, 2023
A:

Simply put, a "conforming" mortgage "conforms" to a set of standards so that the loan can be eligible to be sold to Fannie Mae or Freddie Mac.

Read More
Add to Homescreen?
X
X
Install this web app on your phone :tap and then Add to homescreen