Alert
Close

Join the Drive to End Hunger! Watch the NASCAR race on Sunday at Kansas Speedway.

Highlights

Open


AARP Auto Buying Program

Contests and
Sweeps

$10,000 Games Galore Sweepstakes

Sept. 3, 2014 - Oct. 14, 2014
Play AARP Games for a chance to win $10,000!
See official rules. 

Driver Safety

Piggy bank on the road - AARP Driver Safety

Take the new AARP Smart Driver Course!

AARP Books

Visit the Money Section

Enjoy titles on retirement, Social Security, and becoming debt-free.

Jobs You Might Like

most popular
articles

Viewed

Nothing has been viewed

Ask Sid

Lower Your Mortgage Payments — Without Any Fees?

Instead of a refinancing, consider a home equity loan

En español  |  Q. How can I refinance my mortgage at today's lower rates without paying thousands in settlement fees?A. Instead of a mortgage refinance — with settlement costs that are typically 3 to 6 percent of the loan amount — consider a home equity loan (HEL) if you've accumulated substantial equity. Qualified borrowers can use this kind of loan to pay off a mortgage balance and enjoy an interest rate comparable to what would result from a mortgage refinance but with no, or very low, settlement costs.

See also: How can I stop junk mail?

That's what my wife and I did recently. We wanted to refinance the $52,000 balance of our existing mortgage, a 15-year loan at 5½ percent that we got in 2005. Our monthly principal and interest payment was just over $1,200, and in recent years we've been adding a few hundred dollars extra most months to pay down the loan so we could be free and clear three years early — 2017.

To meet that same payoff goal, we compared a five-year mortgage refinance with a five-year home equity loan. We qualified for a mortgage refinance at 3.25 percent — but it had $2,600 in closing costs (5 percent of the loan amount is typical in our area). Adding those charges into the borrowed amount, our monthly P&I payment would have been about $987 — certainly a significant savings over what we were paying on the old loan. (You need to keep in mind, though, that a lower interest rate means a lower tax deduction, letting Uncle Sam take back some of your savings.)

But we instead opted for a $52,000 home equity loan from our credit union with no closing costs. By opting for automatic withdrawals of monthly payments from our checking account, an additional ¼ percent was shaved from the 3.74 percent rate for a fixed rate of 3.49 percent. The result: Monthly payments of $946 for five years, saving an additional $41 a month compared to a mortgage refinance at a slightly better rate — with the same payoff goal of 2017.

So now, we're saving $260 a month compared to our former P&I payments at 5½ percent — and can use that extra money to feed our IRAs (and maybe enjoy dinner and a movie now and then).

Another option is a home equity line of credit (HELOC), which may have no closing costs or only very low ones.

The differences: With a home equity loan, you receive a one-time lump sum and have a fixed monthly payment over the loan period. With a HELOC, you get a line of credit — and can draw funds up to a predetermined limit, whenever you need money (say, for college tuition costs or to pay off medical bills).

There is generally a minimum payment due each month, but the loan amount and terms vary depending on how much you borrow and how much and quickly you pay it back. A HELOC usually carries a lower initial rate than a home equity loan — recently around 1.99 percent for the first 12 months — but typically has a variable rate.

It's important to note that your home is the collateral for both a HELOC and a HEL. As with a regular mortgage, if you can't make your payments, you risk losing your home.

You may also like: How to find the best interest rates. »

Sid Kirchheimer writes about consumer and health issues for AARP.org.

Topic Alerts

You can get weekly email alerts on the topics below. Just click “Follow.”

Manage Alerts

Processing

Please wait...

progress bar, please wait

related
VIDEO

Tell Us WhatYou Think

Please leave your comment below.

The Cheap Life

Jeff Yeager Cheap Life Ultimate Cheapskate AARP YouTube web series save money

Catch the latest episode of The Cheap Life starring Jeff Yeager, AARP's Ultimate Cheapskate. Watch

Discounts & Benefits

From companies that meet the high standards of service and quality set by AARP.

Life insurance: you are covered rain or shine

Exclusive annuities for members from AARP Lifetime Income Program from New York Life.

AARP Credit card from Chase

Members can get cash back rewards on purchases with the AARP® Credit Card from Chase.

Homeowners Insurance
Member Benefits

Join or renew today! AARP members receive exclusive member benefits & affect social change.

Rewards for Good

Your Points Balance:

Learn More

Earn points for completing free online activities designed to enrich your life.

Find more ways to earn points

Redeem your points to save on merchandise, travel, and more.

Find more ways to redeem points