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Guest

We bought two condos, one is our primary residence and the other is a rental property. We owe about $80,000 on the condo we have rented. My husband wants to pay down the mortgage of that property by using the stocks of around $56,000. For paying off the rest, we are thinking of taking out home equity line of credit. But I am doubtful, can anyone really use a heloc to pay off the mortgage? And is it the right thing? We get around $1500 as rental payment. We can play off the heloc in less than 6 years. What should I consider or keep in mind before going for the heloc?

Guest

Colby first you need to know if there is equity in that condo to be able to take out a HELOC. If the interest rate of this present mortgage is lower than what you would be getting for the HELOC then it will be more of a negative instead of having any benefit for you.

colin · Posted: Mon Apr 30, 2007 6:06 pm Post subject:

Hi Colby,

If the $80,000 mortgage is a fixed rate one with a good interest rate then heloc will not be very helpful as it will have a adjustable rate and might well be higher than what it is for the $80,000 loan.

Also compare the return on your investment plus the rental payment you get with the interest you are paying on this present mortgage and what you would have to pay on the heloc. If heloc comes out to be more expensive than the current mortgage then using a heloc won't be the right option to choose. Also tell me how many years left on the present mortgage.

Colin

Samantha

Hi Colby,

When you go for a home equity line of credit (heloc), you should consider whether you'll be getting tax deduction benefits and how much you will be earning from your investment.

You can deduct the mortgage interest you pay on your rental property. But once you have paid off the mortgage on the rental property, you cannot deduct the heloc taken against it. Your adjusted gross income will then increase thereby affecting your tax return.

However, as long as the heloc in under $100,000 you can deduct the interest on your residence from your tax return. If the heloc goes beyond $100,000, you will not be able to deduct the interest.

Apart from tax deduction benefits, you need to consider the rate of return on your investment and for that you need to compare what you earn by investing with the interest you'll save by paying off the mortgage early with using the investment. So, in that case, if you can mention when you'll have to pay off the loan, it will help us in giving you better suggestions.

Hope this helps. In case you wish to know How a heloc works, go through our section on this topic.

God bless you.

Samantha

Guest

Thanks for all your inputs. My rental property mortgage would expire by another 10 years

colin · Posted: Tue May 01, 2007 5:52 pm Post subject:

Hi Colby,

On your $80,000 mortgage if you make extra monthly payments then you will be able to reduce your mortgage term by a number of years.

In these 6 years in which you think you can pay off the HELOC, you need to calculate how much interest you be paying for the HELOC and for this present $80,000 mortgage (with extra monthly payments). And check if HELOC payments will be lesser than for this present mortgage. By doing so you will get an idea of whether it would be beneficial to take out a HELOC or not.

Colin

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Can I pay off mortgage using a Heloc?