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      02-18-2013, 07:56 PM   #17

Drives: 2011 E92 M3
Join Date: Dec 2011
Location: Canada

iTrader: (0)

Originally Posted by schnell325 View Post
I'm getting back ~$15,000 from income tax.

Now we all know refunds should be spent solely on our M's, BUT here's a "hypothetical" situation.

I have a Line of Credit currently @ 3.5%, and I have a rental property with a mortgage @ 3.09%. Do I throw the $ on the LOC or on the mortgage.

My first thought is the LOC for the simple fact it has the higher interest rate (~$60,000). But, would the mortgage benefit in the long run by knocking that much off the principle (which is currently at ~$113,000) thus decreasing the length of the mortgage?

take that 15K borrow another 100K against it, and invest it in some risky high return assets...

Joking aside,

The prudent financial thing would be to pay down your LoC (best to reduce higher cost debt first, you're renters are paying for the cashflows, mortgage interest tax deductible and you'll still be able to draw on LOC in the future if for whatever reason you need the money again).

That being said, if you're more concerned about cashflows, then you may want to consider putting it against the mortgage. Putting it against the LOC will save you $40/month in payments. Putting it against your mortgage will save you ~$70/month in payments since its applied to both prinicipal and interest (by my rough calcs, your current mortgage pmt is around $550/month). $30/month (and that's pre-tax) shouldn't be a make it or braek it amount so probably best to put it against the LoC.