Auto Lease vs HELOC

Chocaholic · 04-04-2015, 03:20 AM

Long story short. Currently leasing two cars.

Have a HELOC on a second home that reaches draw maturity in June. Cant take out a new HELOC because we have a renter. But, I can still access those funds until end of June.

Question. Current HELOC rate is under 3%. Wouldn't it make sense to access the cash in the HELOC (while I can) and pay off those two vehicles? I realize the HELOC interest rate can go up, but not losing sleep over that.

My HELOC payments become amortized over 15 years at draw maturity date (June). So I pay principal and interest based on a 15 year term and interest is tax deductible.

We plan to sell the 2nd home within the next few years and of course, HELOC would be paid off with the proceeds. BTW, we own that house outright, so plenty of equity available at closing.

Am I missing something? Seems crazy to pay a nickel toward two retail auto leases. Heck, even if the HELOC interest rate doubled over the next couple of years, the monthly nut would still be lower and interest still deductible. No?

onewhippedpuppy · 04-04-2015, 03:41 AM

How are the payoff terms? Are they at least fair market value for the cars in question?

I'm not a big fan of leases or debt. But if your plan is to use the HELOC to pay off the leases, then sell the house and pay off the HELOC, that makes sense because you end up with two paid off cars.

Steve Carlton · 04-04-2015, 03:59 AM

If you're planning on keeping the leased cars, this could be a good way to go. When do the leases end? What years and models? Sometimes there are incentives or you can negotiate the payoff. Not sure about GA, but if you're paying tax in the monthly payments, you'll probably have to pay tax on the payoff. Not that you're planning on doing this, but generally not a great idea to pay off a car over a greatly extended term, like a HELOC. You should pay down the principal faster than on a 15 year schedule.

KFC911 · 04-04-2015, 04:08 AM

I've had a HELOC on my primary (doesn't expire) that I've used for years to purchase other houses, land, my 911, etc. as I didn't want to use/liquidate other assets at the time. Paying off the HELOC asap (within a couple of years) was always part of my logic, and technically, I don't "think" you can deduct from taxes if it's for a vehicle purchase...but who's gonna know? I pay it (HELOC) down so rapidly, it's kind of a non issue anyways imo. I'm a "debt free" kind of person (been that way for years), but simply use the HELOC as a "tool"....YMMV.