Mortgage Interest deduction limit for HELOC

Why in the world would you want to do that? Your interest rate will probably go up (or higher than if you refinanced fully as another 30 year mortgage).

If you're looking to pay it down more quickly, you can do that with your current mortgage. Just send in the extra amount you want to pay, and it will reduce your principal balance and thus the amount of time you have left to pay.

Since it is all secured by the house, you should be able to deduct all the interest. But someone who knows more than I about this kind of thing will correct me if I'm wrong.

Stu

Stu,

thank you for your answer , but still not sure if I could do it or not :) As for why would I ever want to do this , it goes like this ( numbers are different from my previous example where I was rounding them down )

Today ----> $645,000 interest only mortgage due to reset in less than a year ( @ 5.25% ) if I try to refinance the whole amount I go "under" super jumbo category and rates are much higher at that level , but if I split into two parts ( $415,000 30 years + $235,000 HELOC ) I get much much lower rate on the first one ( now it is not jumbo but conforming ) and I could get HELOC for prime -0.5% )

Again thanks for taking time to answer my question sndobo

Assuming that the $600K was home acquisition debt and/or grandfathered debt, then when you refinance with debt secured by the house, the new debt is still home acquisition debt and/or grandfathered debt up to $600,000. The interest you pay on the two loans would be tax deductible.

It makes perfect sense to get a conforming loan up to the conforming loan limit (which depends on where you live), and a second loan for the rest of the money you need.

What you might want to consider -- probably you've already looked at this -- is getting a conventional second mortgage loan rather than a HELOC. HELOC's are (almost) all variable interest rates and that rate might go up. (I'm inclined to say, will go up.) A conventional second mortgage could be fixed rate, could be interest only with a five or seven year balloon, and might save you some money. Make the second loan as small as you can is my advice.

Good luck --

Steve

Alan ,

thanks a lot !! Yes , that is the case .

sndobo

No, a bank HELOC in and of itself has no particular deductibility limit associated with it.

As has already been answered, the interest on refinanced acquisition debt is still deductible.

Part of the problem is that what a bank calls "equity loan", "first", or "second" mortgage, etc., has nothing to do with what the tax folks consider to be either acquisition or equity debt. Another part of the problem is that the various balances you amortize or pay off under the repayment terms of your loans do not necessarily match the balances of acquistion and equity debt for tax purposes.

-Mark Bole

Hi Steve ,

yes I did consider this , but I need "second" to have as small as possible monthly payment ( and that is where interest only HELOC comes to play ) due to my restricted monthly cash flow :) Again thanks to everyone who took time to answer my question

sndobo