Group, I am considering paying off my current mortgage on my home. My thought is that if I pay off my current mortgage (30YR Fixed @ 7.5%) and get a HELOC (80% LTV @ 6.5%) and just don’t use it much I will save money in interest. I don’t know how this will affect my taxes. Are there any other items I need to think of when doing this?

The fear is, once I pay off my loan, if the HELOC does not work out then I have just used up my money… I’ll have no note each month but also no cash. The money I am using to pay off my house is money I earned in my RE investing.

Any thoughts?

Well can you make more than 7.5% somewhere else?

I would like to think that yes I could make 7.5% else where. I was less concerned about the 7.5% but more about the impact paying 7.5% has on my monthly expenses... i.e. the amount of my house note. The house is appreciating an average of 20% per year (Washington DC) so I will still make the appreciation. But appreciation is money I can't spend yet or at least without a HELOC.

Are there any other implications, besides tax write-off that I should consider?

[Group, I am considering paying off my current mortgage on my home.]
Why? I understand having ability of homeownership but wouldn’t you like to have the government kick you back some money yearly just for owning a home instead of paying them annually.[ My thought is that if I pay off my current mortgage (30YR Fixed @ 7.5%) and get a HELOC (80% LTV @ 6.5%) and just don’t use it much I will save money in interest.]

30 year Fix at 7.5? Ouch. Today rates are still in the low 5’s. Plus if you really stuck with that 30 year fix through the term of the note you had bought your house twice. Also a Heloc is a fluctuating superimposed credit card which moves with the market. If Greenspan and Senators have it there way they will keep pushing rates up which inturn will push your payment up monthly. I mean your carrying a car loan interest rate on a home and you want to put a fluctuating heloc with it. Please don’t take this the wrong way I am not making fun of you just tired of some loan officers not educating there clients on the programs they sell. I am sure you have had many people calling you telling you to refinance to a lower payment. At least two years ago you could of really dipped in at cut that 7.5 to almost a 4.5 fixed. That 3% a month you would of saved.
[ I don’t know how this will affect my taxes. Are there any other items I need to think of when doing this?]


[The fear is, once I pay off my loan, if the HELOC does not work out then I have just used up my money… I’ll have no note each month but also no cash. The money I am using to pay off my house is money I earned in my RE investing.]

Also you lost your tax refund. I think that more important if your using your house as a Cash Cow to reinvest into other properties. Also if you’re a strong investor/borrower why don’t you have your home in interest only fixed rate or option arm. I mean your throwing your money away to the bank. If your investment properties are on fixed rates as well I was wondering if you could just give me money too. It’s a joke. But really I hope your mortgage broker is educating you or trying to teach you that putting investment properties on fixed rates is a major waste of money. Those investment properties should be on interest only and option arm. If you would like to know more about the option arm I would definitely give you information on that program.

I am sure there are seasoned vets in this arena that would have a better thought than me. I would also ask a CPA tax consultant about your scenario as well. But please get out of the 30 year fix 7.5 if anything.
Listen I am here for free advice and if you want talk more please call or email me I would definitely help you go over some more options.

Thank you all for your input. I did take your advice and looked to a CPA for guidance. He calculated this:

On my personal home: I paid $16790 in Interest for year 2004. I paid $2644 in taxes. I received a tax deduction in the amout of $4275. So, based on this I paid $16790 to get back $4275.

I have never used this CPA before, is his logic correct?

If so, then if I paid off the house I would no longer be paying $16790 and in turn have to PAY a estimated total of $7,127 in annual taxes.

Is this guy right? Am I in the position to trade paying $16790 versus paying $7,127? If so, then this looks like a 'no-brainer'.

On top of the fact that I will no longer have a monthly house note. And I will now have a smaller debt to income ratio. I don't have any need to use my HELOC, it would just be something to have incase of an emergency.

Also, of the properties I am holding, none of them are in my personal name. Some are in the name of my LLC but most are Sub2 and therefore the Deed is in my name and the mortgages are in the previous owner's name. I commit to all the previous owners that I will clear their name via a sale or re-fi within 24 months... and all the properties are positive Cashflow.