Important news before you get a HELOC

 Owner-occupied, Regulations  Comments Off on Important news before you get a HELOC
Feb 052018

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By G. Steven Bray

With rising home prices, you may be eyeing your increasing home equity with plans for remodeling or some other important need. However, before you do, take a few minutes to consider how the changes to the mortgage interest deduction might affect your tax bill.

It’s been well-reported that the new tax law reduces the max mortgage that qualifies for the mortgage interest deduction from $1m to $750k. For most of us, that’s not a big deal. The bigger deal is that starting this year, interest paid on a home equity line of credit (HELOC) no longer will be eligible for the deduction.

When you take cash out of your home, you have a couple options if you have an existing first mortgage. You can refinance the first mortgage adding to the balance the amount of cash you want, a so-called cash-out refinance, or you can use a HELOC, which typically is a 2nd lien on your home that leaves the existing first mortgage in place. Many folks prefer a HELOC because they have a really low rate for their existing first mortgage.

With the new tax law, the interest paid on a cash-out refinance is still eligible for the mortgage interest deduction. The interest paid on a HELOC is not.

So, before you decide which option to use, consider whether getting a new first mortgage would allow you to itemize your deductions. If it does, then you may find it’s a better financial decision to cash-out refinance your existing mortgage even though you may end up with a slightly higher interest rate.

The case against the 15y mortgage

 Loan Programs, Residential Mortgage  Comments Off on The case against the 15y mortgage
Sep 102015

For more information, please contact me at (512) 261-1542 or

By G. Steven Bray

Very low interest rates have many people refinancing their 30y mortgages into 15y mortgages. The question is is this a good decision?

The argument in favor of the 15y mortgage is that it allows you to build up equity more quickly. For example, for a $250k mortgage, you would lower your principal balance by over $70k at the end of 5 years if you used a 15y loan. In that same period, you would have built only about $24k of equity with a 30y loan.

But is that equity beneficial? Do you risk being house rich and cash poor?

Let’s continue the example. The principal and interest payment on a $250k 30y loan today would be $1194. For a 15y loan, the payment would be $1757, or $563 more each month. Money is cheap right now. Could you gain greater benefit by investing that $6756 each year in a retirement account?

A further consideration is that mortgage interest currently is tax deductible. During the first year, you’d pay $9920 in interest on the 30y mortgage and only $7930 on the 15y mortgage. The 30y mortgage will provide a larger deduction and one that will last longer into the future. Thus, depending on your tax situation, the IRS may refund you some of that extra interest you paid.