Equity loan for payoff question - complicated

Lor_CAApril 4, 2003

Paid cash for a house on two acres (got a good deal - private distress sale) Want to take out an equity loan for about 40K for remodel. Can get a 4.5 adjustable from my bank which makes payments only about $200 a month. Also have a small rental where the payments are 447 a month with 4 years left and income is about 550 a month. Debating on whether to take out an additional 23K to pay off this loan. I would lose the writeoffs and tax benefits of a rental but on the other hand I would get straight income that is taxable of course. My head just isn't working and I can't decide if this would make sense financially. Any opinions? Or is there someone specific I can call to figure this out for me? Thanks.

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dave_donhoff

Hi Lor,

I'm assuming the free & clear house is your residence now,yes?

If so, each dollar of interest paid on the cashout refi (up to $100k) is tax deductible, but only to the percentage of your aggregate income tax bracket.

Each dollar of interest you pay on the rental property is tax deductible 100%... since it's taken OFF the revenues BEFORE taxes.

So, my question;
What's driving you to pay off the rental? The reduction in interest rate (I'm assuming that's it) would have to provide you equal or greater savings than the loss to you of the greater tax benefits.

Cheers,
Dave Donhoff
Just some mortgage guy ;~)

    Bookmark   April 4, 2003 at 4:02PM
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Lor_CA

"What's driving you to pay off the rental? The reduction in interest rate (I'm assuming that's it) would have to provide you equal or greater savings than the loss to you of the greater tax benefits"

Answer: OK, I got divorced and my husbands name is still on the mortgage loan of the rental which is really bugging me. I moved and don't even want him to know my new address which will eventually show up. I also thought since I have only 4 years left on the loan it is mostly principal so the write offs aren't that great anymore.

    Bookmark   April 21, 2003 at 1:31PM
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