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In another attempt to fend off a recession yesterday, the Feds once again cut short term interest rate 1/4 point to 2 percent.  While this may not affect mortgage rates it does however affect Home Equity Lines Of Credit (HELOC).  These lines of credit are normally tied to short term rates vs. the long term rates that affect a traditional mortgage.  These short term rates are also typically lower.  Many property owners have benefited from the recent rate cuts.  It’s a good time to pay down your lines if credit.  One way is to continue making the same payments from before and applying the extra directly to principal.  However, there may be a better way to take advantage of these rate cuts.

HELOC in First Position 

Another interesting tool used by some investors is called a First Lien HELOC or HELOC in first position.  This line acts as your primary mortgage but with the added benefit of easily borrowing money.  The biggest advantage to this strategy may lie in the potential tax savings.  If you’ve owned a mortgage for more than 20 years the tax deductions are starting to dwindle.  The last years of your mortgage payments are primarily going towards principal.  Refinancing or paying off your first mortgage with a HELOC effectively starts the process at the beginning, although for a shorter time frame.   On the downside if the Feds decide to increase rates, your payments can increase with them. 

Although the rate cuts may not allow a homeowner to create additional equity through a traditional mortgage, property owners with a HELOC in first position may receive substantial benefits.  As usual check with a professional before deciding to change your loans.