|Yes, there is no better time to refinance your home equity line of credit. The recent 2018 tax cuts eliminated the interest deduction entirely on HELOC loans. |
Many people we talk with don’t realize that a Home Equity Line of Credit (HELOC) is by definition two things:
- A mortgage secured by a primary residence.
- Always an adjustable rate. If the debt has a FIXED interest rate then it is a Home Equity Loan (not Line).
Home Equity Lines of Credit often offer sale rates – basically a gimmick low-rate to get you started which increases after year one. That low rate year encourages you to stack balances onto the HELOC that will take many years, perhaps decades to pay off.
When advising on debt secured against your house we recommend matching the product with the financing (need) timeline.
For instance, when building a home up to two years to draw on a line of credit is preferable. Remodeling kitchens or other structural work should be a one-year project. Many people use a HELOC to fund college tuition which can be four years or longer.
Remember keeping an active balance on an adjustable rate past the draw period incurs interest rate risk.
Common caps on HELOC’s are 19.99% and almost all HELOC’s have a trigger demand feature that calls for the balance to be paid back in 120 months. A $100,000 balance at the full rate would “demand” a $1,931/month payment every 30 day for a full decade.
Therefore, we recommend converting the HELOC into a fixed interest rate loan as soon as the project need is completed. Especially now when the interest paid on the HELOC is no longer tax deductible.
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John Donlon is the Co‐Founder of GoldCoast Mortgage, Inc., one of the earliest licensed mortgage corporations in the nation. GoldCoast was founded, and fiercely protects, their extreme service model which puts the client’s needs ahead of corporate needs. In an age of technology-based applications you will find their guidance, knowledge, and process very enlightening, comforting and efficient. GoldCoast Mortgage Service, Inc. agents are licensed and arrange residential and commercial mortgages in MA, NH and ME.