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  • May 7, 2008 at 10:14 AM #12670
    cv2
    Participant

    I have received HELOC offers with a rate of prime minus 0.76%. Currently I have a mortgage of 30yr-fixed 7% on a investment property. (I am paying 7% on the investment property because I told them the truth when I refied five years ago.) I am thinking of use this HELOC to pay off the fixed mortgage.

    Does this move make economically sense?

    Details:

    HELOC:
    Variable, margin fixed at prime minus 0.76%.
    $400 app fee and $50 annual fee.

    Or another HELOC offer:
    Variable, margin fixed at prime minus 0.76%.
    no app fee and $90 annual fee.

    I like the first HELOC better.

    May 7, 2008 at 11:36 AM #200497
    HLS
    Participant

    Not recommended for most people..

    For the long run, it’s a risky thing to do. If you have the assets/liquidity to pay it off if you had to, that’s different.

    The trade off of a low rate for a year or two for the unknown over the long run could turn out to be a huge mistake (or brilliant)

    It is harder to qualify for non owner loans today. It also depends on your credit score, income & equity.

    What will you do if prime goes to 10% or more ?

    Having a 30 YR fixed provides security..
    For some price, you could buy the rate down and have a lower long term fixed rate if you qualify.

    Borrowing with short term rates for a long term horizon is just gambling.

    May 7, 2008 at 11:36 AM #200538
    HLS
    Participant

    Not recommended for most people..

    For the long run, it’s a risky thing to do. If you have the assets/liquidity to pay it off if you had to, that’s different.

    The trade off of a low rate for a year or two for the unknown over the long run could turn out to be a huge mistake (or brilliant)

    It is harder to qualify for non owner loans today. It also depends on your credit score, income & equity.

    What will you do if prime goes to 10% or more ?

    Having a 30 YR fixed provides security..
    For some price, you could buy the rate down and have a lower long term fixed rate if you qualify.

    Borrowing with short term rates for a long term horizon is just gambling.

    May 7, 2008 at 11:36 AM #200564
    HLS
    Participant

    Not recommended for most people..

    For the long run, it’s a risky thing to do. If you have the assets/liquidity to pay it off if you had to, that’s different.

    The trade off of a low rate for a year or two for the unknown over the long run could turn out to be a huge mistake (or brilliant)

    It is harder to qualify for non owner loans today. It also depends on your credit score, income & equity.

    What will you do if prime goes to 10% or more ?

    Having a 30 YR fixed provides security..
    For some price, you could buy the rate down and have a lower long term fixed rate if you qualify.

    Borrowing with short term rates for a long term horizon is just gambling.

    May 7, 2008 at 11:36 AM #200589
    HLS
    Participant

    Not recommended for most people..

    For the long run, it’s a risky thing to do. If you have the assets/liquidity to pay it off if you had to, that’s different.

    The trade off of a low rate for a year or two for the unknown over the long run could turn out to be a huge mistake (or brilliant)

    It is harder to qualify for non owner loans today. It also depends on your credit score, income & equity.

    What will you do if prime goes to 10% or more ?

    Having a 30 YR fixed provides security..
    For some price, you could buy the rate down and have a lower long term fixed rate if you qualify.

    Borrowing with short term rates for a long term horizon is just gambling.

    May 7, 2008 at 11:36 AM #200625
    HLS
    Participant

    Not recommended for most people..

    For the long run, it’s a risky thing to do. If you have the assets/liquidity to pay it off if you had to, that’s different.

    The trade off of a low rate for a year or two for the unknown over the long run could turn out to be a huge mistake (or brilliant)

    It is harder to qualify for non owner loans today. It also depends on your credit score, income & equity.

    What will you do if prime goes to 10% or more ?

    Having a 30 YR fixed provides security..
    For some price, you could buy the rate down and have a lower long term fixed rate if you qualify.

    Borrowing with short term rates for a long term horizon is just gambling.

    May 7, 2008 at 11:55 AM #200512
    cv2
    Participant

    Thanks, HLS.

    I totally agree with you. It is just emotionally painful to pay 7% while everybody else is paying less than 6%.

    I figured that at 25 basis points per raise, it will take them 8 meetings to raise rates from 2% now to 4% and they have 6 meetings a year. This will give me one year and 4 months. Also I think they can’t start raising rates until after the election. So I am safe for at least two years.

    One big question is tax. Before I can deduct the interest against the rents. Now I have to pay income on rents and deduct mortgage interest on the primary resident house. Is this a smart move on the tax front?

    May 7, 2008 at 11:55 AM #200553
    cv2
    Participant

    Thanks, HLS.

    I totally agree with you. It is just emotionally painful to pay 7% while everybody else is paying less than 6%.

    I figured that at 25 basis points per raise, it will take them 8 meetings to raise rates from 2% now to 4% and they have 6 meetings a year. This will give me one year and 4 months. Also I think they can’t start raising rates until after the election. So I am safe for at least two years.

    One big question is tax. Before I can deduct the interest against the rents. Now I have to pay income on rents and deduct mortgage interest on the primary resident house. Is this a smart move on the tax front?

    May 7, 2008 at 11:55 AM #200580
    cv2
    Participant

    Thanks, HLS.

    I totally agree with you. It is just emotionally painful to pay 7% while everybody else is paying less than 6%.

    I figured that at 25 basis points per raise, it will take them 8 meetings to raise rates from 2% now to 4% and they have 6 meetings a year. This will give me one year and 4 months. Also I think they can’t start raising rates until after the election. So I am safe for at least two years.

    One big question is tax. Before I can deduct the interest against the rents. Now I have to pay income on rents and deduct mortgage interest on the primary resident house. Is this a smart move on the tax front?

    May 7, 2008 at 11:55 AM #200605
    cv2
    Participant

    Thanks, HLS.

    I totally agree with you. It is just emotionally painful to pay 7% while everybody else is paying less than 6%.

    I figured that at 25 basis points per raise, it will take them 8 meetings to raise rates from 2% now to 4% and they have 6 meetings a year. This will give me one year and 4 months. Also I think they can’t start raising rates until after the election. So I am safe for at least two years.

    One big question is tax. Before I can deduct the interest against the rents. Now I have to pay income on rents and deduct mortgage interest on the primary resident house. Is this a smart move on the tax front?

    May 7, 2008 at 11:55 AM #200641
    cv2
    Participant

    Thanks, HLS.

    I totally agree with you. It is just emotionally painful to pay 7% while everybody else is paying less than 6%.

    I figured that at 25 basis points per raise, it will take them 8 meetings to raise rates from 2% now to 4% and they have 6 meetings a year. This will give me one year and 4 months. Also I think they can’t start raising rates until after the election. So I am safe for at least two years.

    One big question is tax. Before I can deduct the interest against the rents. Now I have to pay income on rents and deduct mortgage interest on the primary resident house. Is this a smart move on the tax front?

    May 7, 2008 at 12:17 PM #200542
    noone
    Participant

    While the mortgage is nonrecourse debt, it is my understanding that the HELOC is not. In other words, if you default on your mortgage, the only thing the bank can legally take is the house. Default on the HELOC and you’re still responsible for the full outstanding amount.

    Just something to think about.

    May 7, 2008 at 12:17 PM #200583
    noone
    Participant

    While the mortgage is nonrecourse debt, it is my understanding that the HELOC is not. In other words, if you default on your mortgage, the only thing the bank can legally take is the house. Default on the HELOC and you’re still responsible for the full outstanding amount.

    Just something to think about.

    May 7, 2008 at 12:17 PM #200609
    noone
    Participant

    While the mortgage is nonrecourse debt, it is my understanding that the HELOC is not. In other words, if you default on your mortgage, the only thing the bank can legally take is the house. Default on the HELOC and you’re still responsible for the full outstanding amount.

    Just something to think about.

    May 7, 2008 at 12:17 PM #200635
    noone
    Participant

    While the mortgage is nonrecourse debt, it is my understanding that the HELOC is not. In other words, if you default on your mortgage, the only thing the bank can legally take is the house. Default on the HELOC and you’re still responsible for the full outstanding amount.

    Just something to think about.

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