My wife and I are in the process of purchasing our first home and could use the groups thoughts on debt management.
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.