Pay off HELOC??

[Enuff2Eat]

A cousin carry a $200k heloc at 10%; He has some family matters (unsure of the details) but ask if he should pay off the $200k heloc or keep $200k to buy CD at 5%

- heloc interest is 100% tax write off since it's business expense.

hence $20k interest/year tax write off and $10k cd interest with 15% tax bracket

vs.

0% interested paid and 0% interest earned but lost control of the money.

Enuff

am I missing anything? any thought please

 

[RunningBum]

So the HELOC costs him $17K/yr ($20K interest - 3K deduction).
The CD nets him $8500 ($10K interest - 1500 tax)

Surely you and he can see this is a bad deal, right?

He can keep the line of credit open but with no balance, can't he? That would keep the money available in an emergency or opportunity. If the HELOC is maxed out and the money is tied up in a CD, what control does he have of the money?

 

[Koolau]

I can't imagine keeping money at 10% interest if it's easily repaid. Just my thinking, so YMMV.

 

[Enuff2Eat]

So the HELOC costs him $17K/yr ($20K interest - 3K deduction).
The CD nets him $8500 ($10K interest - 1500 tax)

Surely you and he can see this is a bad deal, right?

He can keep the line of credit open but with no balance, can't he? That would keep the money available in an emergency or opportunity. If the HELOC is maxed out and the money is tied up in a CD, what control does he have of the money?

thank you... so you are saying PAY OFF the Heloc?

Thank you Running

 

[Enuff2Eat]

I can't imagine keeping money at 10% interest if it's easily repaid. Just my thinking, so YMMV.

your opinion please? Pay off ??

yes the line still can be open and accessible at anytime ..

 

[RunningBum]

Yes, pay it off

 

[Enuff2Eat]

Yes, pay it off

thank you for your insight, Running.

Enuff

 

[pb4uski]

Agree. The HELOC is costing him 8.5% .... 10% *(1-15%).

The CD is earning him 4.25%... 5% *(1-15%).

He might be able to yield 8.5% after-tax with some Adi preferred stocks, but it isn't worth the effort. Just pay off the HELOC.

 

[Enuff2Eat]

Agree. The HELOC is costing him 8.5% .... 10% *(1-15%).

The CD is earning him 4.25%... 5% *(1-15%).

He might be able to yield 8.5% after-tax with some Adi preferred stocks, but it isn't worth the effort. Just pay off the HELOC.

thank you PB..

even with 100% interest tax write off ... I still better off to pay up

 

[Koolau]

Yep, pay off but, remember, I'm not even an expert on TV, so YMMV.