From: joetaxpayer 
Newsgroups: misc.invest.financial-plan
Subject: Re: Debt Management Advice
Date: Mon, 19 Feb 2007 12:55:49 -0600
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kastnna wrote:
> We have no other debt except our car loans. I currently pay 8.6 - 9.0%
> on both of those loans and have about 3.5 years left. The balance of
> the loans totals $35K. We are putting almost 40K down on our house
> (which I understand to be "instant equity"). The interest rate on our
> mortgage is 6% if it matters.
> 
> I am wondering if we would benefit by immediately taking out a HELOC
> and paying-off the car loans to reduce interest expense. Can we take a
> HELOC this soon? What kind of interest rate can we expect (similar to
> our mortgage or more)? Are there substantial closing costs that would
> consume any savings? Is the HELOC interest deductible like our
> mortgage interest?
> 
> There are no penalties for paying-off the car loans early. Does it
> matter that I would be paying-off depreciating assets and increasing
> debt on an appreciating asset? Am I neglecting other factors?
> 
> Thanks in advance.
> 

It matters only in the sense that if you then pay the equity line over 
10 years, you will have done a bad thing. If you arrange the line and 
tap it to pay the car loans, and then make the same payment, you should 
fine that you come out ahead, and turned the interest into a deduction.

A few years back when I refinanced, short term rates were 1% or so, and 
I decided to pay the mortgage principal down, while arranging an HELOC. 
Since then, I refinanced the first mortgage another two times while 
preserving the HELOC. The mortgages and HELOC were all no point/no 
closing. What is missing from this is the risk that HELOCs bring. Easy 
access to money with low payments. If used wisely, it can get you 
through a (short) period of unemployment, or get a cash price for a car, 
etc. If used wrecklessly, it can get you a 10 year payout on big TVs and 
expensive clothing.

Often, the bank providing the first mortage is the best place to start.
JOE