NerdWallet's Smart Money Podcast - Smart Mortgage Strategies: From Refinancing to HELOC

Starting point is 00:00:00 Falling interest rates, stubborn inflation, looming financial goals, all three are intertwined in ways that can get a little messy or confusing. This episode, we're going to help you figure out how to take advantage of this moment to get what you want from your money. Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Sarah Rathner. And I'm so happy that Sean has returned to me. I'm back. After five weeks away on my sabbatical, I've returned for Sarah, for you, and for all of our listeners.

Starting point is 00:00:39 I'm so happy. Okay, we have been on a journey with you now for some time. Do you have some professional news that you would like to share with our listeners? I actually do. I spent the first half of my sabbatical studying very hard for the certified financial planner exam, which runs just a few times a year. So I plan my sabbatical around taking it for the most part. And then I sat for the exam, all six hours of it. And I passed. Did I have you on the edge of your seat there? Well, I actually already knew.

Starting point is 00:01:13 Yeah, you got the inside scoop. And we texted a little bit back and forth while you were away because the news spread like wildfire amongst our colleagues. But obviously, all of our listeners need to know this stuff as well. I am very relieved that it's over. And I'm excited to use all of my newfound knowledge to help listeners answer their money questions. I should note that I am not yet a CFP professional. I am a candidate for certification. There's some administrative stuff that has to happen before I'm actually certified. But for now, the hardest part is over with. And I have learned so much that I will be able to apply even right now in this episode.

Starting point is 00:01:47 All that's left, I think, is the CFP board makes you walk over some hot coals and then wrestle a lion. Yeah, and then cough up about $500, I think. And then that'll be that. And then maybe, maybe they'll consider. If I'm lucky, yes. If you work for the CFP board and you're listening to this, I hope you found that funny. Nothing but respect for the board that now controls my professional life.

Starting point is 00:02:09 Wonderful. Well, like I mentioned, this episode, Sarah and I are going to use my CFP knowledge and also all of Sarah's knowledge to answer some questions that you sent us about refinancing mortgages when interest rates might hopefully be on the decline. But before we get into that, I want to explore other ways that folks can leverage this transitional moment for their benefit. Right now, some people are expecting that inflation may rebound next year if the incoming Trump administration makes good on its promise to implement tariffs. Meanwhile, the Federal Reserve cut interest rates at its two

Starting point is 00:02:45 most recent meetings, and a third rate cut may be on the way later this month. We have these ups and downs swirling around in the economy. And all the while, we regular people are just trying to live our lives and support our families and get our money to where we want it to be. And all of that can be kind of difficult. That's sort of how it always goes, right? Everyone's just trying their best to exist, perhaps even to thrive, regardless of what's happening on a wider scale. Thrive if we dare to do so. But we have to stay responsive and not in a knee jerk way, though. I'd say let's try to be thoughtful and rational, or at least as rational as the human brain allows us to be. Maybe reasonable is a better word for it. There are three areas that I think folks should consider as they look

Starting point is 00:03:30 to best navigate our current moment. One is their debt and how they're paying it off. The second is where they are keeping their savings. And finally, we will look at investment opportunities. That sounds like a plan. Let's start with the most fun one, debt. Yay. Specifically, credit card debt. We know that a lot of people are in a tough bind with credit card debt, and that can get worse over the holidays when there's a lot of pressure to spend money on stuff that may frankly end up in the landfill. In just a few months or a year, we actually happen to be recording this on Cyber Monday. So you might be sitting there with your credit card in hand on a website. Ready to buy some garbage. I know I am.

Starting point is 00:04:09 Ready to buy some garbage. And maybe you should. Maybe you shouldn't. If you haven't looked at your credit card balances recently, carve out about 30 minutes sometime over the next week to eat your vegetables and take stock of what you owe. If you have debt, commit yourself this year to finding a path to paying it off. And I know we might sound like a broken record here, but we harp on paying off your credit card debt because as anyone who is in or has been in credit card debt knows, it can be horrifically expensive.

Starting point is 00:04:38 And I'm speaking from personal experience here. The average interest rate on a credit card was over 20% in August, according to the Federal Reserve. And the money spent on credit card interest is money not spent on things like investing for retirement, vacations with your family, or whatever shiny thing you want to buy at HomeGoods. And I'm looking at myself with that last one. Those live, laugh, love signs aren't going to pay for themselves, Sean. Nor will my rhinestone studded French bulldog soap dispenser, which I bought last week. That is a rich tapestry of a product.

Starting point is 00:05:10 It's happily sitting on my bathroom counter right now. All right. So the silver lining with the recent interest rate cuts is that we can expect interest rates on credit cards to dip slightly. And the operative word here is slightly because it's not like credit card interest rates are going to drop 5% overnight from a rate cut, more like roughly a quarter of a percent depending on what the Fed does this time, which honestly doesn't actually make that much of a difference in how much interest you'll owe mathematically speaking. And I know that's not

Starting point is 00:05:42 great news, but hopefully it just helps motivate you to chip away at that debt because whatever's happening in the news, that debt is still really expensive. Long term, we suggest you explore your solutions for resolving this debt for good, whether that's through one of the common payoff methods like Debt Snowball or Avalanche, or using something like a debt management plan from a nonprofit credit counseling agency or a balance transfer credit card. Now let's touch on savings. And listener, I am curious, do you know how your bank responded to the recent rate cuts? I'm assuming here that you have a high yield savings account. If you don't check out the link in our show notes to see the best high yield savings accounts this month. Our banking nerds have reviewed more than 266 banking products, so you could say this list is pretty well researched.

Starting point is 00:06:30 Some banks may move faster than others to lower the yield that you get on your high-yield savings account after a rate cut, and some banks offer lower rates in general than others. My point here is, if your bank is no longer offering a competitive rate on your savings, now might be a good time to shop around. And Sarah, I got to ask you, have you shopped around for a high-yield savings account recently or compared how your current account stacks up to the competition? I do keep an eye on what's offered out there, but I am happy with the rate on the savings accounts that I already have. So I am keeping my money where it is for now. There you go. For anyone hoping to secure a higher rate on their savings ahead that I already have. So I am keeping my money where it is for now. There you go.

Starting point is 00:07:05 For anyone hoping to secure a higher rate on their savings ahead of any potential rate cuts, another thing to look into would be a certificate of deposit or a CD. These can allow you to lock in a set interest rate for a set amount of time. But of course, there's a catch because there always is. You typically can't access the money in a CD before the term is up without incurring a fee. If you know you won't need a certain amount of money for, say, six months or a year, a CD could be a good option for you to get a decent return on your cash without the uncertainty of investing in the stock market. Speaking of investments, that is the third topic I want to discuss.

Starting point is 00:07:44 What does this moment mean for you and your investments? Now, before I answer that question, I will remind you that I am not your financial or investment advisor. I'm not directing your investment decisions, just providing some food for thought here. I would venture that for most people, this moment may not amount to much over the grand scheme of their investment timeline, particularly when it comes to investing for retirement. Periods of inflation, market ups and downs, interest rate changes, over decades of saving for retirement, we'll likely all experience these kinds of things multiple times. If you're investing in your company's 401k or an IRA and you have your money

Starting point is 00:08:24 in a target date fund, you're probably fine to keep putting money away on a regular basis and just gradually build up that nest egg. Though you may want to check on your account every couple of months just to stay familiar with your investment allocations, your account balance, all that good stuff. And also just make sure that your money is actually going into investments and not just sitting in cash in your retirement account. You want to make sure that it's going where you want it to go. And sometimes it doesn't do that. We hear about people making that mistake every so often, and it's just heartbreaking because

Starting point is 00:08:54 it's so easily avoidable. And as we know, with investing, time is often your most precious resource. So again, make sure that you are actually invested in your investments. I will say, if you like to take a more hands-on approach to your investments, now might be a good time to evaluate the bonds or bond portfolios that you're invested in, specifically your long-term bonds. In periods of falling interest rates, like right now, for example, many financial advisors will recommend that you invest in longer-term

Starting point is 00:09:25 bonds. Doing this can allow you to secure a higher coupon rate on your bond before interest rates fall, and subsequent bonds offer lower coupons. Additionally, when interest rates fall, bond prices tend to go up. A bond purchase now could offer a lower price on that higher coupon than you would pay for that same bond after a rate cut. I'll note that you should also consider your time horizon for investments and current bond yields, so changing the allocation of long-term bonds in your portfolio isn't exactly a straightforward or easy decision for many investors to make, but if you like taking a more active approach to investing, now is a good time to evaluate that mix of bonds and other securities that you have your money in and see if they're well positioned

Starting point is 00:10:08 for our current economic and market conditions. Also, as Sarah said, for many people, this sort of hands-on investing may not be necessary. One thing we heard from our listeners in the survey that we shared earlier this year is that a lot of you are proactive investors. So I just wanted to provide you with a little more information about how you can think about your investments right now. Yes, if you want to make some adjustments to your investment strategy, these are all good things to think about. Or you could just be more like me and basically just dollar cost average with automatic contributions into my retirement account and my taxable brokerage account. And I have to say, for me, my lazy investing technique works. And there's nothing

Starting point is 00:10:50 wrong with keeping it simple. 100% there, Sarah, I am also mostly a passive investor. And that's totally fine. The important thing is that folks are investing in a way that suits their goals and risk tolerance. In a moment, we will turn to this episode's money question segment, where we go into what changes in interest rates may mean for refinancing your mortgage, including whether it's a good idea to jump into a new mortgage as soon as possible. But before that, listener, pause for a second and take a moment to think about where you need some help with your finances. As 2024 comes to a close, we know that a lot of changes are coming our way in 2025. And change comes with risk, but also opportunity. And as Sean and I just laid out, the best answer to your money questions can depend on the economic and political context

Starting point is 00:11:37 of the moment. So send us your money questions, leave a voicemail or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. Or email us at podcast at nerdwallet.com. We have a lot of exciting episodes planned for 2025, and they all revolve around you and your money questions. You know, I decided to pursue my certified financial planner designation so I could help you make smarter financial decisions. And next year, we want to talk with even more of you live on the podcast. Whether you want help sorting out your budget,

Starting point is 00:12:14 or you're just trying to figure out the best way to plan an international vacation this year, or you just want to hang out with me and Sean on the podcast, we're friendly, we want to talk to you. So let us know one more time. Here's how to do that. Leave a voicemail or text us on the nerd hotline at 901-730-6373. Or you can email us at podcast at nerd wallet.com. We can't wait to talk with you. This episode's money question segment is coming up in a moment. Stay with us. We are back and answering your money questions to help you make smarter financial decisions. This episode, we are taking on a couple listener questions about refinancing, something that's on a lot of folks' minds as the Fed begins easing its interest rate policy. And joining us in this conversation is mortgage nerd Kate Wood.

Starting point is 00:13:05 Kate, welcome back to Smart Money. Thanks so much for having me again. Let's get to the first question, which comes from a listener's email. Here it is. Could you please cover in detail how to know when to refinance everything about refinancing, like different types with different costs up front or lender credits to make a no cost, etc. I think a lot of us with higher interest mortgages are starting to feel like we should have a plan to jump into refinancing. I think you covered this in the past already, but a bit less comprehensively and tied to a different time and set of facts. So we're going to start with doing a little refinancing 101. We're going to get really, really basic and ask what even is refinancing? It's when you swap

Starting point is 00:13:45 your current loan, whether for a house or a car, student loans, etc., for a new loan that better suits your current financial goals. That usually means a lower interest rate, monthly payment, and generally better terms. But when is a good time to refinance? Well, if current interest rates are lower than the interest rate on your loan, you might want to look into refinancing. But refinancing isn't as simple as just swapping out your loan. You will have to jump through some hoops, and how you refinance depends on what kind of loan you have.

Starting point is 00:14:17 Like, refinancing an auto loan is not the same as refinancing your home loan. Our listener asked about mortgages specifically, so we're going to focus on those this episode. But if you do want to learn more about refinancing your home loan. Our listener asked about mortgages specifically, so we're going to focus on those this episode. But if you do want to learn more about refinancing a car loan, NerdWallet has a step-by-step guide that we will link to in today's show notes, or just search online for NerdWallet refinance a car loan. Kate, with all of that said, can you please give us a rundown of what might make someone a good candidate for refinancing a mortgage? Sure. This listener sounds like they're interested in getting a lower interest rate and rundown of what might make someone a good candidate for refinancing a mortgage.

Starting point is 00:14:49 Sure. This listener sounds like they're interested in getting a lower interest rate and saving money, so we are going to talk about rate and term refinances. When people just say mortgage refinance as a general term, they're usually actually referring to a rate and term refinance. So with a rate and term refi, you're getting a new mortgage that's for the same loan balance, but with a different interest rate and a new term. So that means the length of time that the loan is going to last. When might somebody be a good candidate for a rate and term refinance? Are there any reliable rules of thumb to follow? Well, you will definitely sometimes hear different rules for refinancing getting tossed around.

Starting point is 00:15:22 So people will say, oh, if you can get an interest rate that's one percentage point lower or two percentage points lower, then you should definitely refinance that kind of thing. But really, as we very often say here at NerdWallet, it's about whether the math makes sense for you. So you're comparing what you're paying each month at your current interest rate to what you would pay at a lower rate. Potentially, if you're in a situation where that extra cash on hand would make a really big difference to you, which it could if it's a relatively small interest rate difference on a large loan amount, for example, you might decide that it's worth refinancing to go down a fraction of a percentage point. Now the but here, which this listener kind of already alluded to, is that refinancing is not free. You'll pay closing costs. They won't be as much as when you bought the home

Starting point is 00:16:03 because you're not making a down payment, but they aren't nothing. It's usually 2% to 6% of the loan amount. So the amount of your mortgage that's remaining and that's being refinanced. You'll pay a new origination fee. The home generally needs to be appraised. So you're getting all those kinds of costs. If you had a $300,000 loan balance, refinancing it would cost between $6,000 and $18,000. Okay, so not exactly cheap. You're spending money to save money over the long run, but to actually come out ahead, folks generally need to stay in their house long enough to hit

Starting point is 00:16:35 their break-even point. That's right. So even though you're lowering your interest rate right away, you're not technically saving money until you hit your breakeven point. And that's when the amount that you've saved from refinancing exceeds the amount that you spent to do the refi. To find the breakeven point, you just divide the closing cost amount by the monthly savings. So with that hypothetical $300,000 refi that I threw out there, the borrower is saving $250 a month, let's say. If we took that sum with closing costs of $6,000 to $18,000, the borrower is saving $250 a month, let's say. If we took that sum with closing costs of $6,000 to $18,000, the borrower on the low end would see savings in about two years. And on the high end, it would take them like six years

Starting point is 00:17:13 before they were really seeing savings from that refi. It can get a little hairy if you want help doing the math. NerdWallet has a free mortgage refinance calculator that we'll link to in today's show notes. And that allows you to see what your costs would be at different interest rates. And we'll talk about how to make refinancing more affordable in a little bit. Now, Kate, is there anything else folks should do to be in a good position to refinance? Sure. With a rate and term refinance, it's all about getting a lower interest rate, right? So you want to be as strong a candidate as you possibly can on that refinance application. It's pretty similar actually

Starting point is 00:17:49 to when you were preparing to buy a home, working on your credit score, paying down high interest debt, not taking out new lines of credit, big expenses, stuff like that. You also wanna be sure you have enough home equity. Lenders usually want you to have 20% equity before you refinance.

Starting point is 00:18:04 And now I'm realizing I should define home equity first. So equity is the amount of your home that you own outright. So that's your home's current value minus what you still owe on the mortgage. Either side of that balance can help you gain equity. So the home's value going up adds to your equity. Also, you paying down your mortgage's principal adds to your equity. It's important to get clear on what you actually want from a refinance. Like what financial goal will refinancing accomplish for you?

Starting point is 00:18:30 Because it takes a bit of work. And as we said, it costs money. And with mortgages, there are a few different ways you can refinance. And each might help you meet a different goal. Kate, can you give us a rundown of what options people have? Like I mentioned before, when people say refinance, just in general, they usually are talking about a rate and term refinance. Another common type of refinance is a cash out refinance.

Starting point is 00:18:53 With a cash out refi, you are getting a new interest rate, you are changing the loan's term, but you are also changing the loan amount. So with a cash out, you borrow a larger amount than what's currently owed on your mortgage. Then at closing, you receive the difference between that larger sum and your current balance in cash. But because you've now got a larger loan amount, even if you lower your interest rate with the refi, your monthly principal and interest payment might be about the same or potentially higher. Can any kind of mortgage be refinanced or are there limitations? Any kind of mortgage can be refinanced, though if you're refinancing a government-backed loan, like a VA loan or an FHA loan, you might see other refi types available to you, like the FHA Streamline or the VA EURL, which is I-R-R-L.

Starting point is 00:19:36 These are still rate and term refinances, but they have slightly different requirements. With any of these, again, the key requirements are that you're a strong candidate and you have sufficient home equity. One thing that's worth mentioning is that sometimes a lender will say, hey, you know what, we can skip the appraisal and save you some money. But if you're living in an area where prices just keep rising, you probably want to get that appraisal instead of the lender going off of, say, what you paid for the home. The appraisal is how the lender verifies your home's current value. And so if your home's value has gone up since you bought it, you might have significantly more equity than you realized. That's also really important because if you have a conventional loan and you've been

Starting point is 00:20:13 paying for private mortgage insurance, refinancing could potentially kill two birds with one stone if your home has appreciated enough in value that you not only qualify for the refinance, but you also have enough equity to cancel your PMI and you've got the appraisal backing up that valuation. Let's get to the listener's question about making a plan to refinance. Say they know what kind of refi they want, they've scrounged up some cash and they've made sure their credit is in a good position. What's the first thing they should do? Step one, start researching lenders. You do not have to work with the same lender that you bought the house with. You don't have to work with the lender that services your loan. Same as with

Starting point is 00:20:49 when you bought a house, different lenders are going to offer different interest rates. And to get the best deal at NerdWallet, we always recommend getting rate quotes from at least three different lenders. The mortgage nerds on my team and me have reviewed more than 50 mortgage lenders on nerdwallet.com if you're looking for a place to start. We also have lender roundups that give you lists of some of our top picks in different categories like refinancing or cash out refi. You might also look for lenders that offer more unique refinancing products. So things that go beyond your basic cash out or rate and term.

Starting point is 00:21:22 Something that I've always found really interesting is that there are a few lenders out there that let you choose your term. So rather than starting over with a full 30 year loan, or maybe really fast forwarding and dropping down to a 15 year term, you could be like, okay, so I have 28 years left on my original mortgage, and I want to refinance it with a 28 year loan. Now, why would you do that? Going all the way out to a new 30 year loan is going to get you the lowest monthly payments. But because it's spread out over the most time, you're also going to pay the most interest overall. Yeah, I will say when I refinanced my mortgage a couple years ago, I definitely compared a few options. Thanks to NerdWallet's comparison tool. I don't just work here. I also use our tools. What can I say?

Starting point is 00:22:02 My original lender said, Hey, tell me what you find and I will see if I can beat it. And we went to him with what we were approved for by other lenders. We went with one, one bank and one credit union. And he said, I can't beat that pleasure doing business with you. And so we went with, with the lender that got us the lowest rate. It's definitely a process that takes a little bit extra time to see what your options are, but that really can help you feel comfortable that you've gotten the best deal possible. Oh, yeah. I mean, shopping around for the best rates really pays off with a mortgage when you can be paying hundreds of thousands of dollars in interest over the life of that loan. The homework is worth it. And if it's the right time for you, then definitely put in the time

Starting point is 00:22:40 because you'll be happy you did. Another thing our listener asked about credits or opportunities to make a refinance no cost. Is that even possible? No closing cost refinances are basically the free launch of mortgages. Really, there is no such thing. You will sometimes see lenders offer no closing cost refis. But realistically, you are paying those costs at some point, You're maybe just not paying them out front. A lot of times it's going to be built into the interest rate that you're being offered. Even though you aren't having that big outlay of cash right then and there, you're going to be paying a higher interest rate over time. And so the amount that that is then costing you over the life of the loan

Starting point is 00:23:21 might be higher than those closing costs were ever going to be. So this is another reason it's really smart to shop around. The different rate and fee combinations that you're offered are going to change up that refinance math and you want to see what works best for you. Now I want to turn to something that is not a refinance, but is perhaps a neighbor, if you will, pun intended. I'm talking about home equity lines of credit or HELOCs. We received a question from a listener about HELOCs, so let's talk about them a bit. Since I imagine many folks have home equity, they might be hoping to tap, especially if they bought in say 2020 or 2021,

Starting point is 00:23:57 and their home has gone up in value. Here is the listener's question. They wrote, what does it mean to lock in a rate of a HELOC? And when is it a good time to do so? What are the benefits? And what does it mean to request a payoff versus a pay down on a HELOC? Let's take these questions one at a time. What does it mean to lock in the rate of a HELOC? And when is it a good idea to do so? Let's just back up a couple steps. And for our listeners who are like, what was that again? We'll just start with simply what is a HELOC? HELOC is an acronym for Home Equity Line of Credit. And it's a type of second mortgage that allows you to borrow as needed against your equity.

Starting point is 00:24:35 Since it's a second mortgage, you're not changing anything about your primary mortgage. So that's a very big difference from a refi, right? So if you're someone who has a really low mortgage rate, and you want to borrow a large amount, that's a pretty big plus. a refi, right? So if you're someone who has a really low mortgage rate and you want to borrow a large amount, that's a pretty big plus. If you had a higher rate and you now have the opportunity to lower it, on the other hand, you might go with a cash out refi and that would accomplish the same goal.

Starting point is 00:24:56 HELOCs give you a credit limit that you can borrow up to and you sort of use it like your credit card. You borrow what you need and you pay it off as you go. There's an initial portion of the HELOC when you're actively withdrawing money. And sometimes during that, you only need to make interest payments. But if you can pay down principal, that'll help make repayment less of a shock when you transition to the repayment part of the HELOC. So usually HELOCs have a 10 year draw period where you're taking out money and then a 20 year repayment period where all

Starting point is 00:25:22 you're doing is paying it off. Our listener asked about locking in a rate on a HELOC. Do HELOCs typically have a fixed rate, meaning the interest rate doesn't change? Or do they tend to be variable, meaning the interest rates will move up and down over time? HELOCs usually have a variable rate. HELOC interest rates are indexed to the primary, and that moves up and down with prevailing interest rates. Over the last couple of years, because interest rates were rising, some mortgage lenders started offering fixed rate HELOCs just to try to make them a little bit more appealing. But something we've also seen, and I think this is what

Starting point is 00:25:54 the listener is referring to, is lenders offering their existing HELOC customers the option to temporarily lock the rate on all or part of the balance of their adjustable rate HELOCs. And a rate lock is pretty much exactly what it sounds like. You're locking down your interest rate so that even if prevailing rates are changing, your interest rate does not. And that is really helpful if you have a variable rate loan in a rising rates environment. For financial planning purposes, it sounds like a fixed rate loan might be better because you know what you're going to be paying on this line of credit. Is that actually the case or is it sometimes the case that a variable rate HELOC

Starting point is 00:26:29 would be the better option? There are pros and cons to each one. If you are really set on a fixed rate loan and you're not finding a fixed rate HELOC that works for you, you could take out a home equity loan. And those are just one lump sum when the loan is taken out. It's also a second mortgage, so it doesn't affect your primary loan. The interest rate doesn't change. But you kind of need to know exactly how much money you want because you're getting it all at once. And that also means that you're paying all of the interest on it all at once from day one of that loan. With a HELOC, because you're borrowing it progressively in stages and you're paying interest on what you have borrowed, especially if you aren't sure how much something's going to cost, you know, maybe you're doing a complex renovation or something like that where you've got estimates from a bunch of contractors, but will they or won't they end up where you're hoping they will?

Starting point is 00:27:17 So for some people, even if the interest rate is variable, the flexibility of a HELOC makes it preferable to a home equity loan. It really depends on you. So Kate, when or why would you want to lock a rate on HELOC? Okay, so we're assuming you've got a variable rate HELOC, which again, most people do. A rate lock on that HELOC will let you take some of your balance and temporarily turn it into a fixed rate loan. Usually we're talking $1,000 or more being locked at a fixed rate for 12 months or longer. So again, if interest rates are rising, that can be really helpful, right? Because you're making your HELOC payments more predictable and you're potentially paying a lower interest rate than where interest rates are going. On the other hand, if rates fall after you

Starting point is 00:27:59 lock, you are stuck with that higher interest rate. It really depends on what's going on. In a falling rates environment, letting a variable rate HELOC just do its thing might make more sense because it will go down on its own. But if rates are going up again, like they were over the last few years, a HELOC rate is going to keep adjusting upward. And so a rate lock might be really appealing. Finally, our listener also asked about the difference between requesting a payoff versus a pay down of a HELOC. Can you explain what those terms mean? A HELOC is a line of credit. So very much like a credit card, you can borrow up to a limit, but you don't have to borrow a certain amount. When you pay down your HELOC, you're paying down the line of credit, and potentially

Starting point is 00:28:41 you could pay it down until you have a balance of zero. But that doesn't mean you're closing it, right? So if you're still in the draw period, and you wanted to borrow more, you could. Paying off the HELOC, on the other hand, would be paying the balance to zero in order to close the account. That could happen because you've got enough money to get rid of the HELOC, and you just want to be done with it. A HELOC payoff will also occur if you sell your home. So the sale will trigger the HELOC being due, and it'll get paid off out of the proceeds of the sale. That was a lot about refinancing and home equity. Kate, do you have any other thoughts

Starting point is 00:29:11 that you would like to leave listeners with as they consider whether or not to make changes to their existing loans? All of this stuff comes down to math, right? But it's also really personal. You might look at all the numbers for a refinance, for example, and see that you won't break even for a while. And maybe you aren't super sure that you'll even stay in the home for

Starting point is 00:29:29 that long. But if the monthly savings would make a really big difference to just your budget, your regular cash flow, you might decide the refi is worth it. We don't always have to look at the numbers as though we're economists or doing a math problem. Bring your own personal context to it because it's your life and your goals. Great advice in general, not just for refinancing, but for so many things when it has to do with your money. So Kate, thank you again for joining us. Thank you for having me.

Starting point is 00:29:55 And that's all we have for this episode. Remember, listener, that we are here for you and your money questions. So turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Visit nerdwallet.com slash podcast for more info on this episode. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

Starting point is 00:30:24 And here's our brief disclaimer. time, turn to the nerds.

NerdWallet's Smart Money Podcast - Smart Mortgage Strategies: From Refinancing to HELOC

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