Real Estate

HELOC or Refinance

  • Last Updated:
  • Mar 17th, 2019 4:32 pm
[OP]
Newbie
Oct 8, 2014
21 posts
3 upvotes

HELOC or Refinance

Currently have two options available, mortgage broker is pushing the refinance option.

Own current property which is my primary residence, mortgage paid off in full home is valued at 1 million dollars. Looking at renting out my current property and purchasing another house to live in.

Have roughly $130,000 cash available as a down payment towards a new home which is going to be about 1 million dollars. I will need to come up with roughly $100,000 more for the downpayment.

Option 1: Broker suggested refinancing my current home, so I will have two mortgages one at 3.41% for the new home, and 3.60% for the one I'm living in right now which is going to turn into a rental property, both 30 years amortization. Told me the advantage to this is I can write off the interest on the rental property mortgage.

Option 2: Taking a HELOC out on my current home, just enough to cover the downpayment. Line of credit will be at 4.25% on $100,000.

I was looking at option 2, but is there really a tax advantage to writing off the interest on the rental property mortgage? Broker was pushing option 1.


Regards,
5 replies
Deal Fanatic
Nov 22, 2015
5685 posts
5087 upvotes
If you're going to do option 1, why not just fully refinance the rental property so that you have barely anything owing on your new place? i.e. borrow $800k from your current place to buy the new place?
[OP]
Newbie
Oct 8, 2014
21 posts
3 upvotes
superfresh89 wrote: If you're going to do option 1, why not just fully refinance the rental property so that you have barely anything owing on your new place? i.e. borrow $800k from your current place to buy the new place?
I was thinking with option 1 the mortgage rate will be higher on the rental property which will be 3.61% where as with option 2 I was told I could get 3.00% since it will be my primary residence that I'm getting the mortgage on.
Deal Fanatic
Nov 22, 2015
5685 posts
5087 upvotes
BestorNothing wrote: I was thinking with option 1 the mortgage rate will be higher on the rental property which will be 3.61% where as with option 2 I was told I could get 3.00% since it will be my primary residence that I'm getting the mortgage on.
Couldn't you refinance right now, while it's still your primary residence?
[OP]
Newbie
Oct 8, 2014
21 posts
3 upvotes
superfresh89 wrote: Couldn't you refinance right now, while it's still your primary residence?
I could, but if I refinanced right now while its my primary residence wouldn't that mean the next home I purchase will be considered as a rental property by the bank resulting in a higher rate on that mortgage.
Deal Addict
Jan 15, 2017
3528 posts
2885 upvotes
This topic is discussed repeatedly on RFD. As you are converting your principal residence to a rental and mortgaging it to purchase another principal residence, you cannot claim the interest on the rental property. It is where you are investing the money that determines whether or not it is eligible for a tax claim - not where you are getting the money from. In this case, the fact that the money is coming from a rental does not mean that you can claim it - the money has to be used to buy a rental to claim it. You are using it to buy your principal home so you will not be able to claim it.

Mortgage Brokers are not trained on tax laws and should never be providing advice and guidance on tax laws.

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