| Home Equity Line of Credit |
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cem0214
First Time Poster
Cash: $ 0.25
Posts: 1
Joined: 29 Jul 2008
Location: NC
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| Home Equity Line of Credit |
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My wife and I are always having disagreements over our home equity line of credit. Normally, my wife is very good with finances. She doesn’t have a credit card and, mostly through her efforts, we have paid for three years of college for our daughter without any loans. However, I sometimes feel that my wife thinks of our home equity as a savings account. We have lived in our home for thirteen years. Our home’s most recent valuation was $120,000. We owe $25,000 on the mortgage. We got our home equity line of credit about four years ago. Since then, we have used the line of credit for home improvements ($25,000), purchased a small vacation home ($45,000), purchased a golf cart to use at our vacation home ($5000), bought a used third vehicle ($3800), and paid for some unexpected medical and home repair expenses. The total on our line of credit now is $76,300. I know we will need a new heating and air system soon so that will probably go on the line of credit as well. My wife’s argument is that everyone else our age (we are in our early 40’s) has way more debt than we do and that without the home equity line of credit, we would suffer on our taxes because we wouldn’t have the interest deduction. My side is that I would like to see our debt coming down at this point in life rather than going up. I am a federal employee and hope to retire at 57.
Our only other debts are modest amounts on our two primary vehicles. We have no credit card debt. We don’t have any savings either. I have my Thrift Savings Plan for retirement with about $150,000. My wife has a small IRA with maybe $20,000.
Admittedly, I have a lot of anxiety, especially about financial issues. Am I being unreasonable with my concerns about the amount we have on our home equity line of credit? Is hoping to be debt free really all that important?
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Tue Jul 29, 2008 3:28 pm |
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efflandt
Senior Member
Cash: $ 80.45
Posts: 401
Joined: 25 Apr 2005
Location: Elgin, IL USA
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Borrowing money only for the interest deduction, or so itemized deductions exceed standard deduction is false logic. It is a deduction from your taxable income not a tax credit. Depending upon your tax bracket, the deduction from your tax is a small fraction of what you are spending in interest.
For example if your are in 15% tax bracket the tax deduction is $15 for every $100 in interest, or in 25% bracket $25 for every $100. But that is not really true because you only benefit from that percent of the amount of interest that exceeds standard deduction.
Crude example assuming 25% tax bracket, $6500 interest, $12,500 itemized deductions.
12,500 - 10,700 (std ded) = 1800 diff between itemized & std deductions
0.25 * 1800 = $450
In this example you would be paying $6500 in interest for a $450 tax deduction over the standard deduction. Does that make sense?
If you did not owe that $76,300 HELOC, you might pay $450 more tax, but with thousands less interest, would have more spending money. I don't know if I am close, but do the math and find out.
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Tue Jul 29, 2008 11:44 pm |
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