2nd Home is it better to get an equity Loan to purchase or a 1st mortgage?

Question

We own our house fully No mortgage value approx $550k.  We are thinking that we like to retire early to near the beach.  Currently we found nice homes with land in that area for $175k.  Is it better to get a home equity for the full cost of the Beach home plus any other small debit (approx $75k 2 cars and a timeshare) or continue to pay on the individual debits and add a Mortgage for the Beach house?

Answer 1

Get a new mortgage for beach house.  Recommend that you payoff the cars and timeshare as soon as possible without taking out the equity.  

If you take out home equity you can only claim up to a $100k for a tax write off.  So everything over a 100k would not count any way.

Retirement is around the corner.  

Good Luck!

Answer 2

Rates are the same on primary and 2nd homes (as long as it's not near your primary...if so, some will consider it an investment property.)

Your options are:  get a better tax break by taking out a first on your current home.  Rates are better on a first mortgage than a second, but the closing costs will be higher.  Use that money for the 2nd home.

or

Take out a loan for the 2nd home.  Tax break isn't as good, but if something were to happen with your finances and you were unable to make house payments, your 2nd home would be foreclosed upon instead of your primary.

HELOC's are risky do to rates being on the increase and the fixed ones have higher rates...the closing costs are extremely low, though.

Have your loan consultant prepare numbers for all the scenarios, then take them to your accountant/tax preparer!