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They recently refinanced it with an 8% 30-year home equity loan on which they owe $42K with monthly payments of $276.

Did they pay points and closing costs out of pocket, or were the closing costs rolled into the loan, or did the bank waive the closing costs in exchange for charging a higher interest rate?

It doesn't matter so much now, but it would be a shame if they paid to refinance and then don't end up reaping the benefits.

What's the mortgage interest rate on the FL loan? If that rate is higher, paying it down would yield more gains than paying down the PA loan.

Anyway, to answer your question, paying off the 8% HEL in PA is about the same as investing in a tax-free, no-risk 8% bond. Even good corporate bonds aren't paying much above 6% these days, and after taxes the yield is even lower.

What are your inlaws' other options for the money?
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