Home equity credit to pay off cars?

iVillage Member
Registered: 08-10-1999
Home equity credit to pay off cars?
1
Mon, 01-24-2005 - 6:30pm

We are curretly at ZERO credit card debt after years of chipping away! We've been celebrating that all weekend!!! Anyway...

We have 2 car loans, one at 9.9 and one at 3.9. We have no plans to get rid of either car ever, if possible, LOL, and we have another 3 years on both loans.

I called our mortgage consultant and she's going to look into a home equity line of credit for us even though we don't need it right now. We've wanted to open one "for a rainy day" and because I'm expecting a second child in June and will be on maternity leave.

Should I use the line of credit to pay off the one car that's at 9.9 so I can deduct the interest for taxes? Should I do both, even though the other loan is a much lower rate? It would be around $20,000 total. I was thinking one loan for 20,000 with a tax deduction could be paid off faster than 2 for 10,000 each (one with high interest)that can't be deducted. Any drawbacks?

What makes the most sense? We will probably be looking to move in another year or two as well, so that plays a part in that we would want to get $$$ out of this house for a down payment on the next, and the loan would affect that.

Any thoughts?

iVillage Member
Registered: 05-19-2004
Mon, 01-24-2005 - 7:08pm

Congrats on no credit card debt!!!!! I have about 3 months to go.

Anyway, I am in no way an expert, this is just my heartfelt opinion. I have always heard that home equity loans/line of credit- are to be avoided at all costs- even if saved for a rainy day. If that bill doesn't get paid, they will take your home! Even though we are very responsible (as I'm sure you are also) in paying our bills, I fear something will happen! We may be able to pay our mortgage, but if that home equity loan wouldn't get paid- we'd be on the street. If it's a car payment-at least we'd just be without one car. Actually, could they take your cars too since the titles would be theirs?

My DH was injured at work last year and was off for 8 wks. Although we got worker's comp, it wasn't enough. We made our payments, but just barely. I never thought it would happen to us. It's scary to think you could lose your home!
We refinanced our car loan to dh's credit union with a 3.75% rate. I saw your rate was 3.9% -that's great! Do you really think your mortgage consultant could beat that? Do you think you could check around to lower the other one?

I am not too concerned with tax deductions on these loans- I think the risks are too great. We have never even gotten a tax deduction for our mortgage because our tax preparer says we don't pay enough in interest. I guess that's a good thing!

I think you can snowflake extra to those car payments all on your own or you could save it for your little bundle of joy. You did a great job on your credit cards!!! I would really try to find a lower rate on your own for that 9.9%, credit unions run good deals around Valentine's Day!!:) Good luck! ~Nicki