Posted: Tue Jul 31, 2007 4:23 am Post subject: RE: second mortgage interest deductible
Hi Richo,
The interest on a second mortgage such as home equity loan or Heloc is deductible as an itemized deduction.
Home equity loan and Heloc can be considered as either home acquisition debt or home equity debt depending upon the purpose for which they have been taken out.
If one uses the home equity loan/heloc to acquire, build or improve your home, it is known as Home Acquisition Debt. But if the same loan is not used to acquire, build or improve the borrower's home, it is called Home Equity Debt. Additionally, the amount by which the debt used to buy, build or improve your home is greater than the home acquisition debt, can also be considered as home equity debt.
For home acquisition debt, one can avail tax deduction as long as the total debt (including first and 2nd mortgage or the mortgages on your primary and second homes) does not exceed $1 million. The limit is around $500,000 if the borrower is married and files tax returns separately.
The home acquisition debt limit is reduced by the amount of the grandfathered debt. The grandfathered debt is any mortgage taken out against your home prior to 14th October, 1987. Such a debt may include a refinance of the loan taken before 14th October, 1987.
However, in case of home equity debt, one can get tax deduction on the first $100,000 of your home equity or $50,000 if the borrower is married and files separately. But one should have taken the mortgage against his home after October 13, 1987.
Now, the total home equity debt (which is tax deductible) is limited to the smaller of the first $100,000 or the total fair market value of homes (primary and second homes, if one has both) reduced by home acquisition and grandfathered debts.
Posted: Fri Feb 20, 2009 5:59 pm Post subject: Interest only Equity Line of Credit
We don't have a security net of eight or nine months saved up in case my husband or I lose lose our job. We were told by an agent of a bank that we should get an iterest only HELOC . For ten years we would only pay interest on any money we borrow from it. We would only borrow from it if one of us lost our job and couldn't make our full mortgage payment. At the end of ten years, if we still owe on it we make interest and principle payments I believe for another ten years. we must keep it opened for three years or pay a penalty. Can having a HELOC like this lower our FICA score or hurt us in anyway and does it allow us to pay a portion of our mortgage if we had to?
As far as FICO score is concerned, I don't think it will be hurt. It all depends upon the fact whether you will be able to pay it or not. If you cannot pay the debts, then your FICO score can go down.
richosasimohan
