Quick question about the logistics of paying the HELOC bill - Mothering Forums
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#1 of 8 Old 01-02-2009, 11:38 PM - Thread Starter
 
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We're in the process of refinancing our primary mortgage and our HELOC. (We're going to save $400 a month -- I'm : !!!) The HELOC is still in a period where we're technically only required to pay the interest accrued each month, but we've always doubled that amount so that we're paying down the principal as well. Now that we're in the midst of refinancing, though, I'm looking at our January HELOC bill, and I'm not sure what to do. Our first new payment for the new mortgage should be in March. We'll skip a payment in February. (Again, :!) For this last January payment, then, do you think I should still send in extra, as we've always done, or just pay the interest due? If we only pay the interest due, we could hang onto an extra $200 or so this month, which would be very nice.

Thoughts?
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#2 of 8 Old 01-03-2009, 01:06 AM
 
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If you pay extra, that's that much less you refi. Decide if its better for the extra money now or to pay the interest on the extra money for the next however many years you've got the mortgage.

Michelle -mom to Katlyn 4/00 , Jake 3/02, and Seth 5/04
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#3 of 8 Old 01-03-2009, 03:52 AM
 
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You're in CA... because you're already in the refi process, technically it doesn't matter which way you go. If you spend the extra now, you'll get a bigger refund from escrow at the close. If you don't spend it now, you'll be spending it in escrow. The difference in interest paid between today and 2 weeks from now is dependent upon your principal balance. So it comes down to a matter of do you want that $200 now or do you want to wait for the close of escrow for 250? (I'm pulling these numbers out of thin air, just so we're clear.)

If you're close to the close of escrow, I wouldn't pay any more than the interest payment, because otherwise you may wind up double-paying and having to wait for a refund. If you have a couple weeks still before close, I'd probably pay the extra, because it winds up being an extra $50 (or whatever interest is) in your pocket at the close of escrow. But just be sure to let your Escrow officer know that you did so they can get an updated payoff demand before close.

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#4 of 8 Old 01-03-2009, 09:19 AM
 
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JMHO, but I think you're looking at this from the wrong side. You are saving some money *monthly* right now, but you are not thinking long-term. Not paying now may cost you much more over the lifetime of the loan. For example, not paying $200 that you are able to now, with interest charges, may end up costing you $500 by the time the loan is paid. The best thing to do is pay as much as you can on mortgage and HELOC so that your loan is less. I wouldn't skip that Feb. payment, either. If the loan isn't ready yet, then I'd save that money and put that full amount toward the principle in March. Too many people just look at what their monthly payments are on loans and not how much they cost them in the end. I guess I've always advocated the bottom line. Be careful here... this could cost you twice as much over the long run as you think you are saving.
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#5 of 8 Old 01-03-2009, 02:24 PM
 
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Amen, Velochic. Amen.
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#6 of 8 Old 01-04-2009, 12:58 PM - Thread Starter
 
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And this is why I come here with questions -- I hadn't thought of it from those angles. We are in the process of building a sizable emegency fund, so I wasn't just going to go shopping with the $200 or the Feb. payment; I was going to put it into our savings. Still, I see what you mean about reducing the overall debt load.

I think I'll make our usual HELOC payment, but I'm still going to use the Feb. money and whatever money we get back in escrow (should be $1,000 or so) to build our emergency fund. I know that, mathematically, that's not probably the best choice (3% savings vs. 5% mortgage) BUT we've been trying to build our EF for a looooon time, and I just want to see the balance go up significantly for once. Our goal is to have 6 months' expenses saved by the end of the year!
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#7 of 8 Old 01-04-2009, 04:03 PM
 
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I think the psychological satisfaction of seeing your EF go up is worth it over the long run!

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#8 of 8 Old 01-05-2009, 04:30 PM
 
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Quote:
Originally Posted by velochic View Post
I wouldn't skip that Feb. payment, either. If the loan isn't ready yet, then I'd save that money and put that full amount toward the principle in March.
That's not how it works, though.

When you refinance, the interest is prepaid for the month you're in IN escrow. So the interest for the remainder of January would be paid in escrow. That's your February payment.

Because interest is paid in arrears, when you make a February payment, you're paying the interest from January. Because you are refinancing in January, you'll only have a few days worth of interest due, so payment is made in escrow. The March payment is paying the February interest.

So when you refi you start making your payments after the first full month. So if you close escrow on the 10th of the month and your payments are due on the 1st, then your next payment won't be due for 6 weeks. But if you close escrow on the 31st, and your payment is due on the 1st, then your first payment is due in 4 weeks.

What I'm saying is that it's not that you're skipping the February payment, it's that it's being rolled into the loan. You're only skipping it in the sense that you don't have to come up with it out of pocket (unless you're short to close escrow).

So whether or not you make an additional payment to your interest on your HELOC, would depend entirely on when you're scheduled to close escrow. Keep in mind that mail may take up to 7 days, and processing of a payment may take up to 10 more. Obviously if you can make an electronic payment on it, that would get processed faster. Escrow can only order an updated payoff demand after that payment has cleared. No escrow company is just going to take your word for it that you mailed in a check for $500 and risk being short on a payoff. So if they can't get an updated payoff demand because the payment hasn't been processed yet, they will submit payoff of the full amount, and you will have double paid that money. At which point you have to wait for the lender to refund you the difference, which can take a full month or more. That's why we usually told borrower's not to pay extra on their last payment... it's more of a headache for everyone involved.

Hopefully that all made sense.

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