mckgolfman m asked:
I have a condo that I rent out and I have a line of credit that is at a lower interest rate than my mortgage. I am thinking about taking out some of that money to lower my primary home’s mortgage principal. I would still make the same payments and I think the tax situation with the interest on both loans is a wash. The credit line would not amortize the same as a structured mortgage, so more of the payment would go towards the principal instead of interest at first, so I think I can come out way ahead in the long run. Am I right? Are there any pitfalls I am not considering?
How can you say a mortgage and home equity line of credit amortizes the same? A mortgage has interest calculated the entire length of the loan and you pay it up front while the line of credit has an interest rate on the principal each month that is reduced by the amount I pay in excess of the prior month’s finance charge.
Debra
I have a condo that I rent out and I have a line of credit that is at a lower interest rate than my mortgage. I am thinking about taking out some of that money to lower my primary home’s mortgage principal. I would still make the same payments and I think the tax situation with the interest on both loans is a wash. The credit line would not amortize the same as a structured mortgage, so more of the payment would go towards the principal instead of interest at first, so I think I can come out way ahead in the long run. Am I right? Are there any pitfalls I am not considering?
How can you say a mortgage and home equity line of credit amortizes the same? A mortgage has interest calculated the entire length of the loan and you pay it up front while the line of credit has an interest rate on the principal each month that is reduced by the amount I pay in excess of the prior month’s finance charge.
Debra
Eric
yes, by a factor of 2
Jacqueline
The only down fall would be the loss of income especially if the condo went unrented for a time. The better idea would be to refinance your home mortgage at a lower rate
Kim
you can absolutely do this and it might help you pay off the primary mortgage much faster. Just make sure to put more than the minimum payment on the line of credit to reduce the balance
Chris
MOST of your conclusions are wrong.
1. Payments on the line of credit WILL be applied to interest first with any remainder applied to principle.
2. Unless you actually pay the SAME $ amount in interest, you will NOT receive the same tax deduction.
3. Because you rent out the second home, it is NOT a second home for tax purposes. It is an INVESTMENT property.
4. The ONLY way you will come out WAY ahead is to PAY OFF debt, not just rename it.