Mortgage Math Problem
November 9, 2012 8:00 PM Subscribe
Please teach me how to solve this problem related to a Home Equity Line Of Credit. While I am looking for an answer, I am equally interested in learning the math required to solve the problem.
- HELOC with interest only payments required.
- Last month's interest = $88.74.
- Currently paying $1,000 per month, mostly principal.
- Interest rate is 2.240% when balance is $50K or greater.
- Interest rate is 2.740% when balance is less than $50K.
- HELOC balance is now just over $50K.
- If money is put in savings account, it will only earn 0.150%.
- If payments of $1,000 per month continue, the next payment will bring the balance below $50K and thus will raise the interest rate 0.500%.
1. Would it be better to defer the interest rate increase by paying interest only for some period of time and putting the balance of the $1,000 in the savings account each month, or would it be better to keep paying the $1,000 per month despite the interest rate increase?
2. If it would be better to defer the additional principal payments, at what point should the savings be used to make a large principal reduction?
Thanks for your help!