 To
consolidate mortgages or not
|  Dear
Dr. Don,
I currently own two homes and have two
mortgage payments. I have a payment of around $980 for the primary residence and
$1,200 on the second home. On the primary residence I owe about $58,000 and on
the second home $104,000.
My question is, should I consolidate the two mortgages
into one and just have one payment or get a home equity loan and
pay off the primary home? Please note that my primary home is in
Maryland and the second home is in Florida. What do you think is
my best option to pay off my primary home and just have one mortgage?
My interest rate on both mortgages is 5.8 percent.
-- Mike Mortgages
 Dear
Mike,
I think restructuring your mortgage debt to have
just one monthly payment isn't a reason to refinance. A home equity
loan or home equity line of credit, HELOC, will have fairly low
closing costs, but interest rates have backed up enough on these
loans that you will be refinancing at a higher interest rate. The
variable rate on a HELOC will continue to go higher every time the
Federal Reserve Board raises its interest rate target for Federal
Funds. The current national average for a HELOC
and a home equity loan are 6.86 percent and 7.21 percent respectively.
The national average for a 30-year
fixed-rate mortgage is 6.07 percent.
Refinancing makes sense when you can get a lower interest
rate or if you need to extend the term of the loan. Assuming both
these loans are fixed-rate loans at 5.8 percent, you're not likely
to improve much, if any, on the interest rate. You didn't mention
the remaining loan terms on the two properties, but it's likely
that you could refinance with a 30-year, fixed-rate mortgage and
reduce your monthly payment quite a bit. The downside to that of
course is the additional interest expense you will pay by extending
to 30 years. The amortization schedule provided with Bankrate's
mortgage calculator will calculate the interest expense on your
current and prospective loans.
Automatic payments via direct debit can make paying
the monthly mortgage payment a snap and avoid the time and expense
of mailing a check. Talk to your lender about which automatic payment
plans they offer.
If you decide to
go ahead anyway, review IRS Publication 536, Home
Mortgage Interest Deduction, or talk to your tax adviser about being able
to use the mortgage interest expense on the new mortgage to generate a deduction
on your income taxes.
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