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| *Loan,banking and credit>>>bank loan |
Have 13K in bank. Should I pay off my car loan(5.5%) or pay down Home Equity loan (8%)? |
I have 50K Home Equity balance. so it will reduce 37K balance if I pay on Home Equity. But I believe I can get tax deduction on interest I pay on Equity. so what should I do? With very few exceptions you always want to pay off whichever is costing you more in interest. This typically means the higher rate. You shouldn't really care which loan you owe more money on! That is a myth. To illustrate: If you pay off $1000 on your car loan, you will owe $55 less in interest ($1000 * 5.5%). If you apply that $1000 to the home loan, you will owe $80 less ($1000 * 8%). The latter essentially puts $25 in your pocket! But it is a bit more complicated than that. As you said, mortgage interest is tax-deductible (though I can't verify the same for home equity loans). If 70% of your payments on the equity loan were interest and only 30% were principal, and If you were in the 32% tax bracket, you could calculate your cost of debt by multipling 8% * (1 - [32% * 70%]), or 6.21%. That is your after-tax interest rate on the home equity loan. As you can see, you still want to pay off the home equity loan first: 6.21% > 5.5%. Pay early or pay often. Talk to a financial advisor at your bank, they're free to talk to and rather helpful. A smart choice (although I don't know your financial specifics) would be to pay off the car loan completely if possible. Then if your current payment scheme wasn't killing you to apply the money you would be paying on the car towards the home equity to pay that off faster. Either way the money is better vested in the car loan since hopefully its less than the home equity. No interest is better than low interest, so paying down on the equity loan won't show any visible advantage to you. Would you borrow money at 5.5% and at 8% to earn 3 - 4% ? Now go get 2 more jobs pay down the Equity loan in one to two years cause manure happens . The house won't be first to go But. Oh about hose(house) equity interest. Would you give me $6000 - $10000 a year so you can have a "tax break" of $2000 to $3000 . YES? i'll send you info on where to send the checks. foreclosure server with plenty of work from people in your situation |
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