Ask Terry Questions Paying off a home equity line of credit

Paying off a home equity line of credit

By Terry Savage on June 30, 2018 | Housing / Real Estate

I currently have a home equity line of credit I took out to buy a mobile home in Florida. I owe $25,000 on the loan at 5.99% interest. I am thinking about taking a loan on my variable appreciable life insurance policy cash value to pay off the loan. The interest rate is 5.45% . The interest payments go back to the policy so it appears the interest is coming back to me. My question is, is this a good plan or should I stay with the bank loan.

Terry Says

This is sort of an “out of the frying pan and into the fire” type of question! First, your home equity line of credit is going to become more costly as interest rates rise. So you’re wise to consider doing away with it. BUT, if you take the money out of your variable life policy, you run the very real risk that your policy will become insolvent — unable to generate enough cash to pay the premiums in the future! (Even though you will be paying interest to “yourself” inside the policy, there are caveats within the policy that make this withdrawal dicey.)
To prove it to yourself, ask the insurance company for an “in-force ledger” — a kind of policy checkup. Ask them to “project” (not a guarantee) when your policy might become unable to generate cash to keep it “in force”. You might be surprised! And then ask what happens if you withdraw the cash you need. Now, you will surely be shocked!
Unless you have no need for the death benefits anymore, this is not the route to go.

My suggestion is to get a second job, anything that will generate about $200/week, and use the money to PAY DOWN the home equity loan. Or else make a decision that this is about to get very expensive and you might need to downsize your “northern” home to keep your Florida home!



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