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  Dear
Dr. Don,
I am looking into opening a home equity line
of credit or a home equity loan. I have about $130,000 in equity
in my condo and am looking at borrowing: $17,000 car loan, $25,000
boat loan, $20,000 in student loans and $20,000 for real estate
investments. Any advice which type of loan to use and what rates
should I be looking for?
Thanks!
-- Nick Knack
 Dear
Nick,
Using a home equity loan instead of a car loan or a boat loan can
result in a lower cost of financing. You may also be able to use the
mortgage interest expense to generate a tax deduction. The interest
rate on a student loan can vary, depending on the type of loan you
get, and the interest expense may generate a tax deduction. Student
loans often have deferment or forbearance features that you won't
be able to replicate by using a home equity loan to finance education
expenses.
You already have that $20,000 invested in real estate.
Leveraging the investment by borrowing against the equity in your
condo and investing in other real estate can make perfect sense,
but you are taking on additional risk.
The advantage of the home equity line of credit (HELOC)
is that minimum payments are interest only, the initial interest
rate is currently lower than a home equity loan and you don't have
to borrow all the money up front. Unless it has minimum draw requirements,
you can borrow money as you need it -- holding down your interest
expense.
The downside is that the HELOC is a variable-rate
loan and short-term interest rates are trending higher. Making interest-only
payments on such depreciating assets as a car and a boat doesn't
make much sense. Bankrate's Greg McBride discusses the interest
rate differentials in a recent Bankrate feature.
You can shop
rates for HELOCs and home equity loans on Bankrate.com.
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