Newspaper article St Louis Post-Dispatch (MO)

Consider Risks Involved in Home Equity Loan

Newspaper article St Louis Post-Dispatch (MO)

Consider Risks Involved in Home Equity Loan

Article excerpt

Q. I have no idea which way to go.

I got married in May. It was a second marriage for both of us.

My husband is a teacher. What with teaching at night, he makes about $55,000 a year. I'm looking for a job right now.

I have my own condo. It's worth about $90,000 and I owe $28,000 on it. I also owe $30,000 in college loans.

My husband says we should put the condo in both of our names. Then we should take out a home equity loan and use it to pay off the student loan. That way the interest would be tax deductible.

Between the two of us, we have six kids in college and one at home.

What should we do? Mary A. Chesterfield

A. I called in a lawyer, a financial planner and an accountant to figure this one out. It's more complex than it seems.

First, Mary, you have to ask yourself a tough question. Are you sure this marriage is forever?

If you place his name on the condo deed, you're giving him a claim to a much greater share of your equity in the event of a divorce, says attorney Eric Taylor.

That said, your husband is right about the tax savings. Home equity interest is deductible, even if you borrow the money to pay off a student loan, says certified public accountant Richard Wise.

You're paying about 8 percent on your student loan, and you can land a home equity loan these days for about 9.75 percent (Some banks offer lower "teaser" rates for the first year or so.)

The higher rate is more than offset by the tax deduction for home equity interest. By my rough calculations, you might save about $400 next year on your joint federal and state income taxes if you follow your husband's advice.

That figure could change, of course, because the rate on home equity loans rises and falls with the prime rate.

You also should consider a complete refinancing. Rates for first mortgages are rather low right now, and they're almost always lower than home equity loans. …

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