pay heloc vs. pay mtg

[MicFromMirus]

Which is better and why?

scenario: You make 60k after selling a property. You...

a) pay down your open mtg to increase your home equity line of credit (heloc)
b) pay back your heloc (assume you`ve used at least 60k from your heloc)

You do plan on using that money for real estate investments in the future - maybe in one month or one year, whenever an attractive deal appears.

 

[LeighF]

I would like some feedback on this too, if anyone can help out.

I have about 50K that I could either put on my mortgage (renewal time is June 2008) or should I put the 50K on my LOC?
Are there advantages/disadvantages to either option?

Thanks

 

[Thomas Beyer]

QUOTE (MicFromMirus @ Apr 25 2008, 03:39 PM) Which is better and why?

scenario: You make 60k after selling a property. You...

a) pay down your open mtg to increase your home equity line of credit (heloc)
b) pay back your heloc (assume you`ve used at least 60k from your heloc)

You do plan on using that money for real estate investments in the future - maybe in one month or one year, whenever an attractive deal appears.

assuming you have an HELOC larger than 60K .. you pay it down to make 5% ... then use it again when you need it .. the beauty of an HELOC .. why do you still have a mortgage, btw ? Why not HELOC only ?

 

[EdRenkema]

I don`t know if the question was answered, Thomas, your reply was to use the flexibility of the HELOC to pay it down ,then you went on to ask why still have a mortgage. I will be in a similar position in 6 to 8 months and 60K will effectively wipe out my mtg on principal resisdence, or I could pay down the HELOC used on several properties, thereby increasing cash flow on those properties - but I can`t do both.

In my opinion the principal mtg not being a tax deductible expense should be paid down first, then use the increase in available HELOC to buy more investment properties, assuming of course it is a readvanceable LOC.

Ed R

 

[SamEfford]

My suggestion would be to pay down the mortgage, and then convert the equity by increasing the LOC limit. Like Ed said, it converts the bad debt to good.

 

[kboughen]

QUOTE (MicFromMirus @ Apr 25 2008, 05:39 PM) Which is better and why?
I would use the 60K to pay down the principle mortgage and then have the current HELCO increased by 60K (this should be allowed as you just increased your equity room on your principle residence by 60K).


This reduces the interest you are paying on your principle mortgage (which is not taxable deductible) and transfers it to the HELCO which is tax deductible.


I would continue doing this until my principle mortgage was completely transferred to my HELCO. If you have an open mortgage now, I would consider replacing it and your HELCO with a readvanceable mortgage which does all this automatically, even transferring the principle portion of your monthly payments over to the HELCO side.

 

[DonCampbell]

For me, it is always preferable to get rid of non-deductible debt first. Then once that is taken care of, then move towards deductible debt and the flexibility that Thomas was speaking of.

 

[MicFromMirus]

I concur with the idea of initially eliminating non-deductible debt, however, one situation that can result from doing so it the issues with debt servicing.
If I continue to use my LOC for investment purposes and use all income/profit/etc uniquely for the purpose of paying down principal, all the while increasing my non-deductible debt, I could find myself in a situation where qualifying could pose a problem.

I realize that using OPM (Other People`s Money), JVs, and NIQ (non-income qualifier) lending programs are a solution, however one can`t deny that the above situation is an obstacle that many may face.

Thank you for your reply Thomas. As per your comment regarding having a heloc only, please see the following thread recently posted: open mtg vs. loc mtg