Financial peoples, a question

[Lyion]

Ok, in trying to figure this out, I'm a bit stumped in what is a better solution.

I currently have a $30,000 Home Equity loan at 8%.

I have an offer for a personal loan at 3.9% that obviously is cheaper, but I lose the tax writeoff.

The tax writeoff is nice, but nothing gargantuan. Lowering my interest rate by 1/2 with me paying extra should allow me to pay this off much sooner, but I'd lose the tax bennies.

I've tried to determine the exact amount of my savings, but unfortunately it's a royal pain in the ass, to do.

Soooo, any opinions?

[10sun]

Go ask an accountant?

[Eziekial]

Lyion,
Take the personal loan! TAKE IT!
ANYTIME (and this goes for everyone reading) you can swap secured debt (ie something is held as collateral in this case Lyion's home) for unsecured debt (ie credit cards, IOUs etc.) at the same or even slightly HIGHER (.5 - 1.5%) rate you should do it. It's not about the fucking $10 you can save over the course of a YEAR that you should focus your attention on as it's the fact that IF (and that is just a huge IF) there was ever a problem in anyway, you don't have the spector of a foreclosure hanging over your head and it gives you MUCH MUCH more negotiating power with your creditor. Understand? If you need more help, feel free to drop me a line. I'm not doing anything at the moment anyway HA!

[Iccarra]

I'd certainly agree on that. Paying 8% on a home equity loan isn't exactly great to begin with. Even if your current balance is at $30k I can't imagine the minimal tax writeoff is worth paying the higher percentage rate....like you said.

[Menlaan]

Be careful with the personal loan. 3.9% is below what Treasuries pay right now, so the bank is clearly expecting you to be paying fees and/or higher interest rates over the life of the loan (an example of the latter would be a teaser rate which, after a period of time, becomes a higher interest rate). Therefore, be very very careful in making all of your minimum payments and read the fine print carefully. There aren't many free lunches out there, and especially not after what's happened to all of the subprime lenders recently.

But, to your question, if your marginal tax rate is 40%, then the after tax interest payment of your home equity line is 8% x (1 - 40%) or 4.8%. If your marginal tax rate is less than that, then your after tax interest is higher.

If you go with the personal loan, set up reminders to make sure you make all of your payments.

Let us know what you decide, and good luck!

[Lyion]

I'd certainly agree on that. Paying 8% on a home equity loan isn't exactly great to begin with. Even if your current balance is at $30k I can't imagine the minimal tax writeoff is worth paying the higher percentage rate....like you said.

Well, 7.9% with no fees or closing costs seemed a good deal last year. I did some home improvements and bought some nice goodies.

I'd like to pay it off in the next 2 years. I'm still considering my options and the tax writeoff seems to be so minimal I'm probably going to go with the personal loan.

Thanks much for the feedback, everyone.

[Eziekial]

Good move. And Menlaan is right, there is never a free lunch so be cautious of fees for transfer and/or late payments. Still even if it's at the same rate as the home equity loan make the move to the unsecured debt.