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Explanation of Mortgage Rate & Interest Rate
Old 10-04-2007, 08:14 AM   #1
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Explanation of Mortgage Rate & Interest Rate

All,

Could someone please educate me about the difference between bank mortgage rate and CD interest rate so that i can make an educated move on the money?

Example: IF i take out an home equity loan for $100,000.00 at 6% and also, at the same time put $100,000.00 (suppose inheritance money) in a CD bank account at the interest rate at 6%. Where will i be in three (3) years Assuming that home equity loan is all "tax right-off".

Please, advice.

why? i like to keep a hold of my money and use 100k loan to do business....

again please help... am i better off just use my money or not??


enuff
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Old 10-04-2007, 09:05 AM   #2
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Originally Posted by Enuff2Eat View Post
All,

Could someone please educate me about the difference between bank mortgage rate and CD interest rate so that i can make an educated move on the money?

Example: IF i take out an home equity loan for $100,000.00 at 6% and also, at the same time put $100,000.00 (suppose inheritance money) in a CD bank account at the interest rate at 6%. Where will i be in three (3) years Assuming that home equity loan is all "tax right-off".

Please, advice.

why? i like to keep a hold of my money and use 100k loan to do business....

again please help... am i better off just use my money or not??


enuff
if you tell me where a CD can get 6%, I'll help with the other problem. My current CD is lower than that.
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Old 10-04-2007, 09:11 AM   #3
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PENFED 3,4,5,7 year CD's APY 6.0% TODAY..... www.penfed.org
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Old 10-04-2007, 09:18 AM   #4
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Enuff2eat:

It goes without saying that if the true APR on both the house and the CD are at 6% then they are equivalent.

There are some fine points (the fine print). You can only write off your taxes housing loans up to a $1M. Beyond that it's not deductible. Ditto for home equity loans beyond $100k that were not used to originally purchase the house. If you only owe $100k or so on the house it just may work out that your itemized deductions aren't worth as much as the standard deduction. Therefore, in this case, the house deduction doesn't get you anything but you will still have to pay income taxes on the bank CD interest. In this case your after tax income will be worse off because you (effectively) can't deduct the mortgage but you still have to pay taxes on the bank CD.

Also, it goes without saying that since a mortgage pays both principle and interest, the cash flow towards the mortgage will be greater than the interest earned on the CD.
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Old 10-04-2007, 09:27 AM   #5
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There will probably be some additional fees on an equity loan that would put you behind. You either pay those fees out of pocket up front, or get something less than $100K out, or the loan amount is something more than $100K which means you are paying more in interest than you are getting from the CD.
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Old 10-04-2007, 09:34 AM   #6
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master, i am totally confused after reading your post. i don't expect a perfect or golden answer but i am still lost.

100k hel (home equity loan) to start an ice cream shop. every single dollar is "tax write-off" for the business. is this correct?

100k 6% cd, i need to pay ~25% (assuming tax bracket) on income tax. is this correct?


question.

1) hold on to my money and use the loan to start a business?? yes or no
2) forget the loan, use my own money to start a business?? yes or no


enuff

thanks mr. master
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Old 10-04-2007, 09:44 AM   #7
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100k hel (home equity loan) to start an ice cream shop. every single dollar is "tax write-off" for the business. is this correct?
Generally this is true. However if the total interest on the mortgage(s), real estate taxes and other deductions are less than the standard deduction then there is no advantage in deducting interest now is there ? That was my point. I suspect that for you the 100k is entirely deductable so this issue isn't relevant.

Quote:
1) hold on to my money and use the loan to start a business?? yes or no
2) forget the loan, use my own money to start a business?? yes or no
They are equivalent in my mind.... Choose your weapon.
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Old 10-04-2007, 01:59 PM   #8
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Is the interest on home equity loans deductible if the money is used for something other than home improvements?
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Old 10-04-2007, 03:25 PM   #9
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Is the interest on home equity loans deductible if the money is used for something other than home improvements?
If you don't tell the Fed what you used the money for I won't either.
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