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Posted by jIM on February 19, 2007, 4:09 pm
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> > kastnna wrote:
> > > We have no other debt except our car loans. I currently pay 8.6 - 9.0%
> > > on both of those loans and have about 3.5 years left. The balance of
> > > the loans totals $35K. We are putting almost 40K down on our house
> > > (which I understand to be "instant equity"). The interest rate on our
> > > mortgage is 6% if it matters.
>
> > > I am wondering if we would benefit by immediately taking out a HELOC
> > > and paying-off the car loans to reduce interest expense. Can we take a
> > > HELOC this soon? What kind of interest rate can we expect (similar to
> > > our mortgage or more)? Are there substantial closing costs that would
> > > consume any savings? Is the HELOC interest deductible like our
> > > mortgage interest?
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> > > There are no penalties for paying-off the car loans early. Does it
> > > matter that I would be paying-off depreciating assets and increasing
> > > debt on an appreciating asset? Am I neglecting other factors?
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> > > Thanks in advance.
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> > It matters only in the sense that if you then pay the equity line over
> > 10 years, you will have done a bad thing. If you arrange the line and
> > tap it to pay the car loans, and then make the same payment, you should
> > fine that you come out ahead, and turned the interest into a deduction.
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> > A few years back when I refinanced, short term rates were 1% or so, and
> > I decided to pay the mortgage principal down, while arranging an HELOC.
> > Since then, I refinanced the first mortgage another two times while
> > preserving the HELOC. The mortgages and HELOC were all no point/no
> > closing. What is missing from this is the risk that HELOCs bring. Easy
> > access to money with low payments. If used wisely, it can get you
> > through a (short) period of unemployment, or get a cash price for a car,
> > etc. If used wrecklessly, it can get you a 10 year payout on big TVs and
> > expensive clothing.
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> > Often, the bank providing the first mortage is the best place to start.
> > JOE- Hide quoted text -
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> > - Show quoted text -
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> Thanks for the info (you too jIM). As JOE pointed out, I am looking to
> minimize overall debt expense, not lower my monthly payments. I would
> obviously need to continue (or hopefully shorten) the loan repayment
> schedule that I currently have in place.
>
> I was mainly thinking that aside from closing costs an 8.6% HELOC
> repayed in 3.5 years would be better than a 8.6% auto loan repayment
> for 3.5 years simply because the interest expense is deductible on the
> HELOC and not on the auto loan.
>
> One more line of questions. I have secured financing on our new home,
> but we haven't closed yet. If the other variables make the HELOC an
> advantageous plan for us, can I reduce or eliminate closing costs on
> the HELOC by having it done along with the mortgage that is currently
> in the works? Is that even an option the bank will consider? Am I
> being foolish to think the HELOC may be 9% or lower?- Hide quoted text -
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> - Show quoted text -
Find out what the HELOC terms are- we got a 15 yr ARM on our HELOC
which was prime+1. 7.25% looked good when we closed, but it jumped
once per year and is at 9.25% now. (Hence the reason we wanted to
refinance).
Our 15 yr ARM was really 10 yr interest only, then last 5 years
ammortizes the remaining balance. I caught this after year 1 when
doing a financial checkup over the holidays. A 30 yr fixed second
mortgage with a 15 yr fixed payment is much better financially for
us. 15 yr fixed was a lower payment than the 15 yr ARM, so decision
was a no brainer.
Our refinance would have been cheapest if we stayed at our current
lender, but our current lender could not get us the competitive
interest rates lending tree.com could.
HELOC closing costs will exist, but probably won't be the large part
of the closing costs. Most money at closing will be associated with
first mortgage (is my experience).
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