STIILID ore a $80,000 mortgage on her All of the interest she pays is 000 loan, only the interest on the inst Example 7.7 E Foster has a $500,000 mortgage on her primary residence, a $80.000 men vacation home, and a $75.000 balance on her home equity loan. All of the inte tax-deductible. However, if Emily had taken out a $115,000 loan, only the interest $100.000 of the loan would be deductible. It does not matter whether Emily uses that to buy a car or to add a swimming pool to her home, she would not receive a the last $15,000. ame, she would not receive a tax deduction on When substantial loan amounts are needed for work on the house or for other purposes the homeowner may have the choice of taking out a home equity loan or refinancing the first mortgage for a larger amount. The two relevant factors in making such a decision are the interest rate on the mortgage outstanding and the amount by which the interest rate on the proposed home equity loan exceeds the current market rate on a new first mortgage. It is often best to take out a homo equity loan when the rate on the homeowner's exist- ing first mortgage is well below the market rate and the total sum of the original mortgage is large relative to the total amount of housing debt that will be outstanding after the addi- tional borrowing. Frequently, it is better for homeowners to refinance when current rates are lower those existing on the first mortgagc. Although home equity loans may contain closing costs, competition has sometimes compelled lenders to waive then. Martin and Kristin both badan quity loans may contain front-end Example 7.8 STIILID ore a $80,000 mortgage on her All of the interest she pays is 000 loan, only the interest on the inst Example 7.7 E Foster has a $500,000 mortgage on her primary residence, a $80.000 men vacation home, and a $75.000 balance on her home equity loan. All of the inte tax-deductible. However, if Emily had taken out a $115,000 loan, only the interest $100.000 of the loan would be deductible. It does not matter whether Emily uses that to buy a car or to add a swimming pool to her home, she would not receive a the last $15,000. ame, she would not receive a tax deduction on When substantial loan amounts are needed for work on the house or for other purposes the homeowner may have the choice of taking out a home equity loan or refinancing the first mortgage for a larger amount. The two relevant factors in making such a decision are the interest rate on the mortgage outstanding and the amount by which the interest rate on the proposed home equity loan exceeds the current market rate on a new first mortgage. It is often best to take out a homo equity loan when the rate on the homeowner's exist- ing first mortgage is well below the market rate and the total sum of the original mortgage is large relative to the total amount of housing debt that will be outstanding after the addi- tional borrowing. Frequently, it is better for homeowners to refinance when current rates are lower those existing on the first mortgagc. Although home equity loans may contain closing costs, competition has sometimes compelled lenders to waive then. Martin and Kristin both badan quity loans may contain front-end Example 7.8
