Posted on: 17th Jan, 2009 05:41 pm
We'd like to try to reduce what we're paying on our $600,000 6.25% fixed mortgage (loan to value is probably less than 30%), because of a recent layoff, but the employment situation has made that all but impossible through a refinancing. We could, however, use the HELOC to pay down at least part of it...the HELOC is variable, of course, but right now it's at 2.24% and I don't expect rates to rise anytime soon.
My question is this: if I pay down a bunch of the mortgage with the HELOC, will the interest on the HELOC be deductible on debt above the first $100,000 since the debt will be incurred to pay down first mortgage debt?
Guess I'll also welcome any thoughts on this strategy (using a variable rate HELOC to pay down a 6.25% fixed loan). I figure that at the current rate on the HELCO I'll save something close to $900/month...though there's the deductibility issue and the interest rate risk.
Thanks.
My question is this: if I pay down a bunch of the mortgage with the HELOC, will the interest on the HELOC be deductible on debt above the first $100,000 since the debt will be incurred to pay down first mortgage debt?
Guess I'll also welcome any thoughts on this strategy (using a variable rate HELOC to pay down a 6.25% fixed loan). I figure that at the current rate on the HELCO I'll save something close to $900/month...though there's the deductibility issue and the interest rate risk.
Thanks.
Yes, the interest you pay on the HELOC should be take deductible. Check with your accountant regarding your specific scenarion.
Meanwhile, although your HELOC scenario would save you money in interest each month, it most likely will not change your monthly payments. In fact, it may INCREASE your monthly payments. You have a 30yr fixed at 5.25%. Your payment is also fixed regardless as to whether you pay off a large chunk with your HELOC. What happens is that the interest portion of your current payment will decrease and the principal will increase. Meanwhile, you will also have to pay the minimum on your HELOC.
Meanwhile, although your HELOC scenario would save you money in interest each month, it most likely will not change your monthly payments. In fact, it may INCREASE your monthly payments. You have a 30yr fixed at 5.25%. Your payment is also fixed regardless as to whether you pay off a large chunk with your HELOC. What happens is that the interest portion of your current payment will decrease and the principal will increase. Meanwhile, you will also have to pay the minimum on your HELOC.
Thanks for the reply. You are incorrect with regard to what will happen to the mortgage payments if we pay some of it down. We've paid some down previously (it was originally a $700,000 loan), and the monthly payments were readjusted to reflect full repayment over the same period as the initial loan. We won't get a new 30 year repayment period, but we will pay less each month because the total due by the maturity date of the mortgage is lower.
