remortgage with cash out vs. a home equity loan ?

[pokoinc70]

I own my home free and clear but , I owe  $50,000 on my Class A motor home and $25,000 yet on my automobile . The motor home qualifies as a second home  so I can declare the interest paid at 3.74% and the payment is $550 per month. The automobile interest is at 3.79% and the payment is $450 per month. My question is should I refinance $100,000 for 30 years at 3.5% interest , taking 50K cash out to pay off the motor home and 25K  to pay off the auto loan and  use the remaining 25K  on needed home improvements ! My new payment would be $450 vs the $1000 I pay out now .  I'm concerned , that by doing this , I may loose the $2000 interest credit by transferring that 50K debt into a home loan ! Would I be better off keeping the Recreational Vehicle  loan as it is and applying  for fee free home equity loan of 50K ? I realize that only the money used towards home improvements would be tax declarable and not the $2500 applied to pay off the automobile .                 Tom

[NCperson · Accepted solution]

the way it works is that any 'new' debt must be used to substantially improve your home.

so the $50,000 is just replacement of debt - it remains tax deductible (assuming the balance is lower than when you first purchased the mobile home).

the $25,000 of home improvement is tax deductible

the $25,000 to pay off the car loan is not deductible. 

The IRS doesn't care whether it's a HELOC for a cash out mortgage; the math is the same 

So $75,000 would be 'tax deductible' debt and $25,000 would not be.  As you pay down this $100,000 mortgage, the IRS assumes the non-deductible portion is paid down first, so over time, the percentage of interest that is deductible would keep going up. 

[pokoinc70 · Accepted solution]

Thank you for your reply !