| Should I take out a home equity loan to help pay off land |
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chase8937
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| Should I take out a home equity loan to help pay off land |
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Here is my situation. I own a piece of land that is costing me $375 a month. This loan is a 5 year arm @ a 7.25% interest rate. My house is valued at $164.000. I have paid it down to $94,000. Since I cannot deduction the interest for the land, should I take a home equity loan out to help pay off the land.
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Tue Jan 01, 2008 2:55 am |
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rockhound
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| Interest |
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I would say that you'd be better off to simply pay extra principal in order to pay off the loan. You'd be a lot farther ahead by paying off the principal because the interest on the loan is more than you'd save from the real estate tax deduction. When you claim mortgage interest, you're not getting that whole amount. By the time you go to the tables to look up your tax, you're only getting credit for a small percentage of the mortgage interest that you paid, it's not dollar for dollar. They're just throwing you a bone by letting you deduct mortgage interest--it's better than nothing, but you pay a lot more in interest on the loan. The best thing would be to pay extra to the principal without taking out another loan.
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Tue Jan 01, 2008 6:25 pm |
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pf101
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I agree with rockhound. Just throw all your extra money at it and get OUT of debt instead of just moving it around.
Personal Finance 101
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Wed Jan 02, 2008 5:20 am |
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Apollo
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I would not recommend that you take out a home equity loan. No in this case and not in any other case.
It is not smart to play it safe but it is safe to play it smart.
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Wed Jan 02, 2008 8:19 am |
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feodog
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I'm new to this so please take me to school if logic is off.
I would think getting an equity loan, no charge to setup, could replace the existing loan with similiar if not lower interest rate. Then make the equity payment as high as you can. What am I missing? human nature? lack of decipline?
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Sun Jan 06, 2008 3:17 am |
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pf101
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Location: Portland, OR
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feodog, much of it has to do with interest rates but in general it's bad to use your house as an ATM. It's better to get in the habit of paying off debt rather than shuffling it around because the more often you move it the more likely it is you're going to mess something up.
Personal Finance 101
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Mon Jan 07, 2008 5:37 am |
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efflandt
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Location: Elgin, IL USA
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Something to note is that there is a difference between a home equity loan and home equity line of credit (HELOC). A home equity loan typically has fixed interest and payments for a fixed period (period can be decreased by paying off more principal). A HELOC is more flexible about payments (typically interest only until it expires), but you have to be more deligent about paying down the principal yourself, to minimize the interest and not end up with a balloon.
When I refi'ed my home early 2005 at lower fixed rate for shorter term with my original lender for my home, they gave me a free HELOC for the amount of paid principal. However, the HELOC is a variable interest rate, prime - 0.5% (currently 6.75%). At that time the total closing cost for refi, HELOC, and interest bearing checking for auto pay and to do my own escrow was $170.
But costs have probably gone up (and some property values have stagnated or gone down), so you have to look at the total cost of refinancing vs. paying down the principal on your existing loan.
You might also look at teaser rates offers from existing credit cards for unlimited time with a dollar limit (like $75) for balance transfer fee. That may not be 0%, but if you can habitually make payments on time and not charge anything else to that card, something like a 3.99% rate could pay for itself, depending upon the amount and time frame.
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Tue Jan 08, 2008 12:04 am |
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Apollo
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Don't attempt to use your home as an ATM. Use it for what it was intended...live in it. Period.
It is not smart to play it safe but it is safe to play it smart.
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Tue Jan 08, 2008 9:59 pm |
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