ADR BLOG

HELOCs, home equity lines of credit, have lost the position of being a low-cost, tax deductible method for securing college education funding, car purchases, and other short term cash needs. https://www.irs.gov/publications/p936 [The IRS Publication 937  title Exhibit A explains all mortgage interest deduction changes from 2017 forward.] explains how mortgage interest deductions have changed.

The top three reasons for helocs no longer holding sway with savvy consumers include: First, heloc rates are now near or over 5% (as of the writing of this article). That's about a full percentage point higher than a standard 30 year fixed mortgage and more than a full percentage point higher than adjustable rate mortgages. There's little reason to pay more, when a consumer can simply refinance out of this high cost method of obtaining mortgage debt into a first lien mortgage that's fixed.

Secondly, helocs are no longer 100% deductible. There are a number of factors that disqualify heloc tax deductibility all together. Click on the IRS link above to determine if any of your heloc interest is tax deductible - at most $100k may be, but at worst it's no longer tax deductible at all (depending on use).

Lastly, heloc debt is very likely uncapped with respect to interest rate. Why would a consumer put such a large liability in a floating (north) rate interest rate? In this interest rate environment that's the last thing a consumer should do. Instead lock in a near 4% interest rate and get rid of that pesky heloc debt.

HELOCs may come back into fashion when the interest rate market changes, but for now savvy investors and home owners will be wise to stay away from this debt and replace it with first lien mortgages that are fixed in rate and term.

ADRMortgage.com is owned by Andy May Group, LLC and is a state licensed mortgage company in North Carolina and Virginia since 2005 (NMLS #88010, MLO #103418). Since 2005 the company has received Zero BBB complaints and treats customers as family. Family owned and operated from Raleigh, North Carolina the company serves military (VA mortgages), Jumbo, conventional, FHA, USDA and other families looking to obtain the lowest financing costs available. ADRMortgage.com competes on rate and service and is located at 8522 Six Forks Road, Suite 201, Raleigh, North Carolina 27615. Andy May may be reached at 919 771 3379.