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I was considering paying down the equity loan I have on my home (rate is tied to prime) with the money I would normally be setting aside for RE taxes. My thinking was that since you can't earn any significant interest in a savings account it would be better to pay down the equity loan. I would then pull out the necessary funds from the equity line to pay the RE taxes. Does that sounds "foolish"?

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I was considering paying down the equity loan I have on my home (rate is tied to prime) with the money I would normally be setting aside for RE taxes. My thinking was that since you can't earn any significant interest in a savings account it would be better to pay down the equity loan. I would then pull out the necessary funds from the equity line to pay the RE taxes. Does that sounds "foolish"?

IMO paying off the HELOC would be "Foolish." As long as your HELOC balance is going down overall and you don't incur transaction fees, temporarily reduing the HELOC balance with your tax money sounds OK. If the HELOC isn't going down overall, you're paying necessary expenses with borrowed money, and that's not a good idea.

Phil
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Does that sounds "foolish"?

Sounds fine to me, but I don't see a big dollar savings.

Low cost HELOC's are in the 4% to 4.5% range now (I think). And I think the best savings rates (at something like ING) are about 2%. So you're looking at something like a 2.5% difference in rates.

If your property taxes aren't all that large - around $3k - the most you'd save would be $75 if the money was set aside all year. If you put aside 1/12 of the taxes each month, the savings would be roughly half that, or $38.

But changing the assumptions could change your outcome quite a bit. Take the HELOC to 5.5%, the savings rate to .25% and the property taxes to $6k and the savings comes out to $315.

If there are any fees associated with taking a draw on the HELOC, they could quickly eat up the savings.

Arbitrage works, but it's usually a small margin, large dollar volume game.

--Peter
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Thanks for the feedback you guys. The other piece of the puzzle for me is that I typically receive a significant portion of my compensation as a year end bonus. It is not guaranteed so I do not count my chickens until it's in the bank but I typically use this to help pay for my RE taxes (and hopefully more of the HELOC!) So, if I don't get the bonus it's almost a zero sum game...if I do then I've paid off a chunk of my loan.
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