One of the local banks is offering a great promotional rate on a 20 year fixed rate home equity loan. The rate/cost is
lower than I can get from any of the banks or mortgage
companies on a no point/no closing cost "mortgage
refinance". I was planning to use this to refinance and pay
off my current first mortgage of 130K and am not taking out
any additional cash. They claim that aside from not
escrowing my taxes, that there essentially is no difference
between a home equity loan and a mortgage. Is this true? Are
there any tax or other implications that anyone knows of
that I should know about. Would the home equity loan be
treated the same as my current mortgage by the IRS? There
are no points and or closing costs, I have owned the home
for 1 year and this is my principal residence if those items
matter. Would apreciate input as this is an area I know
little about.
This seems too good to be true. The major difference
between a home equity loan and a 1st mortgage is that the
home equity lender is 2nd in line and therefore takes more
risk. More risk and a lower rate are inconsistent. Are you
sure you could not get a refinance deal better than this?
Since you are just trading your mortgage balance for another
refinanced mortgage, and there are no points, the interest
paid on the refinanced arrangement would be deductible just
like the original mortgage.
If you had taken out more of a loan and your mortgage loans
then exceeded the equity in your home, the amount above
equity is a personal loan on which you have no deduction.
And if you paid points to get this refinancing loan, you
would be able to deduct the points only over the life of the
loan.
