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My first mortgage has a balance of $147k with 4.75% fixed interest rate. My home equity line of credit (HELOC) has a balance of $87k with prime minus 1.1%.

I've been making about $50 extra payment towards my first mortgage for about a year. Would I be better off putting the extra towards the HELOC instead?

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    For clarity, what is the current, actual interest rate of the HELOC? – Todd May 8 '14 at 17:57
  • Welcome to Money.se. While I am assuming the US, could you please tag your question with the country just in case? – MrChrister May 8 '14 at 19:35
  • How often does the interest rate on your HELOC change? – MrChrister May 8 '14 at 19:39
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I would tend to put it towards the HELOC...

Assuming that you started off with a 150K, 30 year, if you keep going you'd pay off your mortgage about 3.5 years early. Not bad. However you have a fixed rate which is smart. Also assuming that your HELOC is around 2%....

To me the HELOC is a really high balance and as such represents a significant interest rate risk. I would be looking to get that sucker to zero as quickly as possible. Given the historically low rates of interest, you can probably expect an increase. If it comes soon or later, well that is anyone's guess. Last year, I read that interest rates were expected to climb significantly in 2014, but that has not occurred.

The nice thing is that given the low interest rate of the HELOC it is easy to make progress. Granted $50 is not going to move the needle much. I'd be looking to increase that extra payment to something like $5000/month.

  • Thank you. Yes the heloc is about 2 depending on the prime. – 4exchange May 8 '14 at 19:22

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