Question: About a year and half ago, I took out a 80-15-5 loan.

I paid 5% down to purchase the house. Then 80% of the loan is a 5-year ARM. The remainder 30% (amounts to about $33K) is in line of credit in which I pay market+2 % interest.

I was wondering if I could benefit by paying off the small loan ($33K at market+2 interest).

Would the interest I pay be deductible in this year’s taxes?

Please advice! Thanks

Answer: Yes, you would benefit by paying off the smaller loan. It is kind of expensive given that H/E loans are available for 4.5% in this area, often with some kind of teaser rate for the first 90 days. Paying off this loan will free up cash flow for other purposes, hopefully, paying off more debt or saving for retirment. The interest that you pay on this loan is tax deductiable as long as the total of your two loans is less than the market value of your house. the rate is low though, so I’d probably not worry about paying it off, but instead pay off anything that is charging higher rates, whether it be car loans, retail, or whatever.

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