Is it better to pay extra money towards a home equity loan at 4 % or just put the money in savings at 3%?

Credit score is very good and value of equity in the home is about 80% paid off. Asked by watermelon 39 months ago Similar questions: pay extra money home equity loan put savings 3% Business > Financial Planning.

Similar questions: pay extra money home equity loan put savings 3%.

You should pay off your debt first, unless the interest rate being paid on savings/investments goes above the interest rate of the debt. However, if your "emergency savings" is not enough to cover 6 months, then you should take care of that first. It would be a shame, if you have 80% ownership in your home not to get to 100% ownership so they can never take your home from you..

For the time being, put the money in savings. The bank may freeze your equity line There is a lot of uncertainty today regarding the stock market, mortgages, home equity lines, savings, retirement and just what to do with your money. If you think you are confused trying to figure out what is the best thing to do with your money, you are not alone.

Even the financial markets, where there are supposed to be experts, can’t get it right. First of all, some banks are freezing home equity lines. This is happening in areas where the value of the home is dropping below the outstanding balance on the equity line and the mortgage.

This does not mean your bank will freeze the line, but it can. Take a look around your neighborhood and see what homes are selling for. Most area real estate companies have data on asking, selling and original price of the home.

This way you can get a good idea how values are holding up in your area. If you are paying extra money on the loan, and the bank freezes the HE line, you will not have access to your money until things open up again. You also may consider taking some money out of your equity line and putting it in a savings account for a short period (90 to 120 days).

This way you will have access to the cash if you need it and won't have to worry about losing access if the line is frozen. Then once things seem to improve, you can put the money back in the home equity line. You would only need to do this if you feel you may need emergency cash in the next two or three months.

Secondly, if your home equity line is $100,000 or less and you have been using the equity for home improvements, the interest your are paying may be tax deductible. This means the you really are not paying 4% for the equity loan because if you can deduct the interest, you have a net cost on the loan. Putting your money in a savings account right now is a good way to maintain liquidity and easy access to cash.

But, unlike the money you get back for tax deducting the interest on the HE line, you have to pay tax on the interest earned on savings, so you really are not earning 3%. But, this is a small cost to pay to have some liquidity. Deciding between prepaying your mortgage or home equity loan and investing your extra cash isn’t easy, because each option has advantages and disadvantages.

But you can start by weighing what you’ll gain financially by choosing one option against what you’ll give up. In economic terms, this is known as evaluating the opportunity cost. To determine if you would come out ahead if you invested your extra cash, start by looking at the after tax rate of return you can expect from prepaying your home equity line.

This is generally less than the interest rate you’re paying once you take into account any tax deduction you receive for mortgage interest. Once you’ve calculated that figure, compare it to the after-tax return you could receive by investing your extra cash. Keep in mind that the rate of return you’ll receive is directly related to the investments you choose.

Investments with the potential for higher returns may expose you to more risk, so take this into account when making your decision. Here are some other things to consider: The lower the rate on your home equity line, the greater the potential to receive a better return through investing. • How long do you plan to stay in your home?

The main benefit of prepaying your equity line is the amount of interest you save over the long term; if you plan to move soon, there is less value in putting more money toward the line. • Will you have the discipline to invest your extra cash rather than spend it? If not, you might be better off making extra equity line payments.

• Do you have an emergency account to cover unexpected expenses? It doesn’t make sense to make extra equity line payments now if you’ll be forced to borrow money at a higher interest rate later. And keep in mind that if your financial circumstances change--if you lose your job or suffer a disability, for example, you may have more trouble borrowing against your home equity.

• How comfortable are you with debt? If you worry endlessly about it, give the emotional benefits of paying off your equity line extra consideration. • Are you saddled with high balances on credit cards or personal loans?

If so, it’s often better to pay off those debts first. The interest rate on consumer debt isn’t tax deductible, and is often far higher than either your equity line interest rate or the rate of return you’re likely to receive on your investments. • Have you saved enough for retirement?

If you haven’t, consider contributing up to 7% each year to tax-advantaged retirement accounts before prepaying your equity line. This is especially important if you are receiving a generous employer match. For example, if you save 6% of your income, an employer match of 50% of what you contribute (i.e.

, 3% of your income) could potentially add thousands of extra dollars to your retirement account each year. Prepaying your equity linemay not be the best financial move if it means forgoing that match or shortchanging your retirement fund. • How much time do you have before you reach retirement or until your children go off to college?

The longer your time frame, the more time you have to potentially grow your money by investing. Alternatively, if paying off your equity line before reaching a financial goal will make you feel much more secure, factor that into your decision. It is impossible to predict all the scenarios with the current economic situation.In the end, you need to be able to sleep at night.

So you need to make a decision that you are comfortable with.

In this economic climate: I advise mixing your "portfolio"... have anough money for a month's expenses, or possibly two, and then work on the loan. From a purely financial standpoint, for every dollar that you have in savings, rather than paying off the loan, you are paying a net loss of 1% however, having a contingency fund available may prevent you from finding yourself in an expensive credit bind, if things should go sideways on you. Of course, on the other hand, if we get spiraling inflation, it may be beneficial to be in debt, as you buy products for today's dollars, and then pay for them with tomorrow's devalued dollars..

You need to keep your money, in times of uncertainty you have to rely on whatever is certain and constant. You need to keep your money, in times of uncertainty you have to rely on whatever is certain and constant. Your home equity loan, home equity line of credit may be canceled and even called due prematurely and this is often detailed within the lending agreement.

During these most difficult of times which may be the impetus of your question, we're witnessing HELOC's being reduced, canceled and in some cases called prematurely even when the borrower is current and hever missed or late on a payment. Your home value may be declining or uncertain, I have no idea how much home equity you have but don't assume it has stopped declining, couldn't decline and is always possible to draw upon. But you do know how much money you have in savings, and you know how much you can contribute to it and during uncertainty this is the lifeline that will carry through uncertainty..

1 Maybe instead consider taking a small amount of this money and investing it in a part time business, which will give you much better than a 3-4% return, and will provide insurance should you lose your job. Something with local customers would probably be the most secure, an essential service. Just a thought for you.

Maybe instead consider taking a small amount of this money and investing it in a part time business, which will give you much better than a 3-4% return, and will provide insurance should you lose your job. Something with local customers would probably be the most secure, an essential service. Just a thought for you.

" "I owe 25Kmostly in credit cards. Should I take out a 9.5% home equity loan or get 0% interest cred cards til paid off?" "got a sallie mae loan and the money sent to the school now I am not taking one class, what's happens to extra money" "Extra cash - pay towards car loan, or deposit to savings? " "I need a car to get to school.

Can I get a loan in my name for a car and my husband pay the bill. He supplies the money" "Do I have to pay mortgage insurance with an FHA loan, even if I put 20% down? " "can I transfer an existing home equity loan, attached to my current residence to a new residence?

" "If all the financial markets are going to collapse, where can you put your savings?" "Could I get a new home loan if I already have a home with an equity loan of $45,000?

Is it better to leave money in the bank earning 4.5% interest or take it out and pay off the home equity loan @7%.

I owe 25Kmostly in credit cards. Should I take out a 9.5% home equity loan or get 0% interest cred cards til paid off?

Got a sallie mae loan and the money sent to the school now I am not taking one class, what's happens to extra money.

I need a car to get to school. Can I get a loan in my name for a car and my husband pay the bill. He supplies the money.

I cant really gove you an answer,but what I can give you is a way to a solution, that is you have to find the anglde that you relate to or peaks your interest. A good paper is one that people get drawn into because it reaches them ln some way.As for me WW11 to me, I think of the holocaust and the effect it had on the survivors, their families and those who stood by and did nothing until it was too late.