Paying off home equity?
Monday, 6. September 2010
Our home equity loan must have been a variable rate. It used to be 6.5% and has gradually went up to 10%. We owe about 00.00. The interest can be used as a tax deduction, along with our regular mortgage interest. However, would it be best to pay off home equity with a low interest credit card? (3.99%) We’ve been paying about 0/mo. on the home equity payment.
cal1 Says:
Good Question! That 3.99% is a teaser rate- which means that it’s probably for balance transfers or for a limited amount of time. Now if its only for a small amount of time. let’s say 6 months or a year, then the answer is no -unless you are able to pay off the card balance before the rate change goes up.
Now if it is a fixed rate on a balance transfer then that 3.99% is attractive even though you will lose the tax deduction. Besides, you are only talking about losing a deduction on $2400 (12 * 200) , so in my opinion, I wouldn’t even worry about the tax break. Being in debt just to get a tax deduction is kind of weird anyway. Being debt free is always a better option. So, if you can make the transfer and still maintain your payments on your card, go for it. Be aware that your credit card issuer would love for you to make one mistake in your payment history such as missing a payment or being late with a payment. They will increase your interest rate considerably if you do that!
Now, here is something else to consider: If you leave things like it is your loan at 10% will be paid off in 27 months, at 3.99% the loan will be paid off in 26 months, with a difference in savings around $367 dollars. If you could add a little more to the principal amount of this loan each month , then your loan would be paid off sooner!
Start saving more… even if it means just $10 a week…so that in your future…you don’t do loans and enjoy the freedom that comes with being debt free!
peace!
la45309 Says:
if you can get 3.9 I’D go for it, pay the principle and interest not the minimum.
stan c Says:
Don’t start playing around with credit card deals. If you could get a personal loan for 5 years at a fixed rate The payments will be way less than 200 per month but you can always pay more to the principle each month to reduce the years on the loan.
TPM Says:
They are not going to let you do that anyway. Read the fine print on your card account. It’s not a balance transfer, they would process it as a cash advance and your rate would not be 3.9%. Trust me on this. Check the rate for cash advances and you will see it’s significantly higher!