If you were going to borrow $10,000.00 and your choices were to charge, refinance or Home Equity Loan?

Question

I admit it numbers make my head hurt, so I could probally figure the difference in Excel but I would rather ask a numbers person. I can charge $10,000.00 with a convenience check at 5%, or refinance my house (plenty of equity) 7.5% or home equity loan at 7.50%. I want to be able to this loan off in 30 to 60 months. Where would the less finance charges by paid? Thanks for your help :)

Answer 1

Home equity loan interest is deductible -- to a point

Those words accompany almost every home equity loan or line of credit solicitation for good reason. Tax regulations allow many people to deduct all or part of the interest they pay on these loans, but there are exceptions. Because of these potential pitfalls, experts say people should educate themselves before borrowing against their homes.

If you have the option to take a home equity loan vs. going out and borrowing money at a higher rate which is not deductible and buying a car, then of course the home equity loan is going to be better.


Thanks to changes in the tax laws dating back to 1986, many people can benefit by moving debt with non-deductible interest -- such as auto and motorcycle loans and credit cards -- over to a tax-deductible loan or line of credit secured by a home. The tax advantage has the effect of lowering the already low equity loan rate even further, making credit cards look like a pretty silly way to manage debt.


For home equity, you can deduct the interest on a loan up to $100,000 regardless of where you use the money.Let's say your children are going to college and you need extra cash. You can take a home equity loan of up to $100,000 and deduct the interest payments on the Schedule A.

The limit applies regardless of whether a borrower has one $100,000 equity loan against a primary residence, or a combination of loans worth that much but secured against two different homes.


Tighter tax restrictions apply to borrowers who take out home equity loans that, along with a first mortgage, raise the debt to a level above the value of the property.

In such circumstances, borrowers can deduct the interest on only part of home equity debt. The Internal Revenue Service determines the eligible debt by subtracting the amount borrowed to acquire the property -- the first mortgage -- from the fair market value of the home.

A homeowner with a $100,000 property and an $80,000 first mortgage, for example, might be able to get an equity loan for $45,000 under a 125 percent loan-to-value program. But the house is worth only $20,000 more than the original debt, so only the interest on the first $20,000 of the home equity debt is deductible.


Equity loans used for home improvement qualify for different treatment, however. They resemble first mortgages for tax purposes. And since people can deduct interest on $1 million worth of first mortgage debt, they have greater leeway than those who use their equity loans for things besides a new deck or garage.

It's called 'acquisition indebtedness -- a loan you get to build your house, a loan to buy your house, or any loan you take out to substantially improve your home.

For instance, someone with a $400,000 first mortgage who added a bedroom wing for $200,000 could deduct all the interest paid. A similar borrower who used the $200,000 loan for college expenses, on the other hand, only could deduct the interest paid on the first $100,000 of the balance.

Answer 2

Home equity loan. Refinace would involve closing costs.The payback on a Home equity loan would be structured so you would pay it back within 5 years and the interest would be tax deductible. The convenience checks usually have a service charge attached to them in addition to the interest, which usually goes up after a couple of years.

Answer 3

Well, clearly the 5% would be the less finance charges. However, the interest on your home equity loan is tax deductible, so I would go with the home equity loan. Re-fi of course is another option but too much trouble.

Answer 4

I would go either refinance or home equity loan. I work for a mortgage lender and broker so send me an e-mail and if I'm licensed in your state I would be glad to help you out.

Answer 5

I would say home equity loan. Can you get a better rate through a re-fi? If not....that is your worst option. Home equity loan for the tax write off......final answer

Answer 6

is this some kind of trick question?
I say Home Equity Loan

Answer 7

Convenience check is the worst option, 5 % is not tax deductable & usually the "intro of %5" is not for 2 years.
-refi is nice if you can shave off a few pts of the interest rate, however you will get killed in refi cost added to the back end of your loan.
-Home equity loan is prob your best option.

Answer 8

Since you mention you have lots of equity, it's likely that you took out your loan a few years ago. So I think you're better off refinancing, so you can still enjoy the tax benefits. You can comparison shop at the below website and see who can offer you the best deal

Answer 9

Only take money out on your house as a last resort.

Answer 10

re finance...