Pay down mortgage or HELOC?

[scooter260]

Here's my situation:

Mortgage of $415,000. 30 years. 4.875% rate.
HELOC of $81,000. 4.875% rate.

I will be able to pay approx. $2,500/month above and beyond my current principal + interest amounts on both loans. Which loan should I apply this extra money against....the mortgage or the HELOC? Is it better to get the HELOC paid off and done or start paying down the mortgage first?

Thanks!

 

[Meadbh]

As I understand it, mortgage interest is tax deductible in the US, while HELOC is not. If that is the case, the cost of borrowing, dollar for dollar, is lower on the mortgage. Therefore in your situation I would pay off the HELOC first, but I would keep it open in case of an emergency.

 

[scooter260]

Is mortgage interest tax deductible regardless of household income? Thanks!

 

[eridanus]

A HELOC is tax-deductible in the US if it's <$100,000 and used for any purposes.

 

[stephenandrew]

I assume your HELOC is a varaibale rate? If so, I would pay that down first.

 

[Gumby]

What he said, particularly given that rates are only going up from here.

 

[Meadbh]

A HELOC is tax-deductible in the US if it's <$100,000 and used for any purposes.

I stand corrected.....and between that and being able to legally walk away from a mortgage (which just blows me away) I am beginning to understand why USians are so sorely tempted to get into debt LOL!

 

[lightspeed]

Is mortgage interest tax deductible regardless of household income? Thanks!

Please verify these numbers for yourself when doing taxes, but the anwer is no- schedule A deductions, including mortgage interest deductions, whittle away with increasing gross income above $159,950. No deduction unless schedule A deductions exceed 3% of the difference between AGI and $159,950.

 

[growing_older]

I'd put all the extra on the HELOC. Your mortgage payment will not adjust if you reduce the balance (until it gets to zero) but your HELOC might, depending on how its written. Likewise, if you get in a jam and want some of that money back, you cannot get it back out of your mortgage without a potentially expensive refi, but you should be able to draw on your HELOC. The flexibility could be very valuable and your rates are nearly the same (which is crazy, HELOC is usually much lower).