HELOC rate below first mortgage - an advantage or trap?

[Anonymous]

With prime coming down sharply, my HELOC of prime -1.01% is now at 4.99% and my mortgage is at 5.25%. There's debate whether prime will have to come down further - perhaps another 1 or 2 25 basis points, so my HELOC could go to 4.49%. So long as the HELOC stays below the 1st mortgage how much of an advantage might it be to make additional principle payments against the first mortgage by drawing from the HELOC and therefore paying less total interest? Doing this would avoid paying any refi fees which would be $5-$8k depending on terms. Since the HELOC is variable I know the rate will increase again as soon as prime turns around -- but that isn't likely in the short term (I'd guess no sooner than Q4 2008). Or is this a trap which mirrors the subprime mess? I have always used 30 year fixed mortgages and have been kicking myself for the last 15 years while watching all the smarter folk getting away with rock bottom ARM payments in their bigger houses saving tons of money. I'm not prepared to refi to an ARM now (although a 15 year fixed is tempting), but wonder if I could benefit from taking a chunk out from my fixed mortgage and sticking it into the adjustable HELOC so I don't feel like I'm always paying more than everyone else.

[Anonymous]

Don't rob Peter to pay Paul - the HELOC is adjustable and if we go into a full blown recession interest rates will rise -- I remember mortgages at 14% and higher in the early 1980s.

[Anonymous]

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Lady_Scarlet wrote:

Don't rob Peter to pay Paul - the HELOC is adjustable and if we go into a full blown recession interest rates will rise -- I remember mortgages at 14% and higher in the early 1980s.

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Yep what she said......DON'T! 

I remember when my parents bought a house in the late 70's or early 80's and the rate was 15%  and that was Great at the time!  I also remember when they refinance and got 8.5%  they were in heaven.....today my parents are "hoping" the rates drop below what they have and they can refi to a lower rate......They are currently paying 4.75% on a 15 year with only 4 years left, so I think they will be hoping for a while yet! 

Message Edited by tpgusmc on 02-09-2008 07:11 AM