Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Jimbo in Newport Beach asks:
Q. I own a Newport Beach home worth about $1.3 million with a mortgage of about $215,000. I have a 15-year, 5.375% mortgage. A friend suggests I used my equity line — which is at prime (recently 3.25%) with a limit of $250,000 — to pay off the mortgage. My interest rate would be less, and I’d pay off the mortgage quicker. I’m worried that the rate could shoot back up. What do you think?

A. These schemes – and I mean this in an evil sense - have been around for a while. I think it is just another one of those scams that gives shifty salesmen something to peddle.

The scheme takes advantage of the fact that interest on an equity line is, today, lower than your mortgage rate. And, second, interest accrues on a daily basis whereas your mortgage accrues the same interest every month regardless of when you make the payment. The advantage is that if you make your equity-line payment early, you save interest that you would not save if you made your mortgage payment early. It is true that the cumulative savings from doing this a measurable, but not significant in any calculations I have ever seen.

What these scams never mention is that you open yourself up to significant rate risk, as you worry about. With prime at 3.25%, it looks good. You save 2.125% per year or about $4,500. What happens when prime rate goes to 8%? At that point, you would be losing $5,500 per year. If you think that won’t happen, check out this history of prime rates.

Just this decade prime rate has been over 6% as much as it has been under 6%. In 2006 and 2007 it was at 8%. Does that make you a believer? You can see why those shifty salesmen don’t want you to see it.

Bottom line your rate worries are well-founded. Ask your friend if he wants you to use your equity line to pay off his loan and then have him pay you whatever the interest cost is every month. I’ll bet he won’t do it, and neither should you.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.

Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.

Read prior questions and answers by clicking on the headlines below…

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• Paying off a mortgage vs. refinancing
• Mortgage problems of the wealthy
• The skinny on 40-year mortgages
• Refinancing questions and answers
• How to buy with little money down
• Do banks renegotiate mortgages for ‘good’ borrowers?
• Is it time to buy a rental property?
• Caution urged on mortgages that fund retirement
• Refinancing can be tricky if your home was recently for sale
• Shopping for lowest rate is dumb way to get a mortgage
• Speedy mortgage payoffs could cost you
• Paying your mortgage may be the best use of your money
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