Just a little financial puzzle.
- An investment mortgage with 5.5% interest rate, 100K balance and 20 years left.
- Saving account with 100K in the saving account at 0.5%
- HELOC without any balance and 100K credit limit.
- Let's say the rent is $700 and just covers the mortgage payment (ignore all the maintenance fees)
Question. Does it make sense to do any of the following?
- Payoff the mortgage with savings. That means have no life savings, keep HELOC as a backup plan (but keep $700 a month to restore the savings)
- Use HELOC to payoff the mortgage. The current rate would be 3.5% (prime + 0.25%) but it's not fixed and may go up.
- Use some kind of combination of the 2 above
Keep in mind that this is an investment property and right now the mortgage interest is an expense for tax purposes. If the mortgage is paid off then "would be interest" becomes a taxable rental income.