A Mortgage

Q: I was wonder how common it is to use a 30 year home equity loan to refinance a mortgage. Specifically I referring to this ad by Bank One: http://www2.bankone.com/presents/30year/ I've sent in the application, so I suppose I'll hear what they have to say. It seems like a great idea because they claim there are no fees. I assume though that the interest rate will be a bit higher. And if I pay off the mortgage I'll probably be responsible for paying my own taxes and insurance; I'm not sure if the home equity would have a escrow or not. I'm wonder what would happen if I missed a payment or two. Could my house be reposed faster under a home equity loan than a conventional mortgage loan? I'm just looking for any advice from anyone who is familiar with a 30 year home equity loan.

A: I have had loans work both ways...mortgage only, mortgage plus home equity line, and just a home equity loan (no mortgage). In one case, the initial loan that I used to buy the property was a home equity loan (there was no mortgage to start with). In all of these cases, I never noticed a difference as an end user. The home equity loans seemed to have fewer fees and required less paperwork to get the loan. One difference that I have noticed in loans are some compute interest on a daily basis. This results in odd effects from paying your loan payment on different days. For example, if you make a payment right on time, then make the next one early, then make the 3rd on time again, the 2nd payment will pay down more principal (since there was fewer days of interest), and the 3rd payment will pay down almost no principal (since the additional number of days results in it being almost all interest). This makes it very hard to keep track of your balances and interest paid until you get the statements from the lender.

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