Simply Money: Home equity loan issues

Question: Should I get a 30-year fixed loan to prevent an interest rate balloon or keep the home equity line of credit and keep drawing against it for living expenses?

Answer: You may be able to lock in a reasonable rate on your existing balance with the lender currently servicing your home equity line of credit (HELOC). This would protect you from potentially higher rates in the future and you'd still have access to the rest of the line of credit if you need it in the future.

Not all HELOCs have this feature, but it is worth checking to see if your loan does include it.

You also may check into the potential benefits of a reverse mortgage once you turn 62, as it could eliminate the mortgage payment and provide you with monthly cash flow.

Refinancing a HELOC

Q: I got a home equity loan four years ago at 11.5 percent for 125 percent of the home value. I desperately want to re-finance. Should I?

A: If you have a first and a second mortgage the second may agree to subordinate (stay in second lien position) and let you refinance your first mortgage to a better rate.

If refinancing the first would save you a substantial amount of money, the second mortgage company would be motivated to allow this because it would improve your ability to pay them back.

If you are able to do this, consider using the extra money you save every month to pay off all consumer debt first and then start paying extra on that second to get "right side up" on the house.