Mapgirl and I have been discussing my decision on February 4, 2006 to move my entire home equity line balance over to a 0% credit card for the next 10 months. She'll be adding a post to her blog about it in the next few days. Here's a short clarification I sent her that I'd like to share on why I prefer to "unsecure" that particular loan.

I think the 2nd mortgage is a revolving line so it shows up in the same category as credit cards and stuff in the FICO score. The reason I unsecured the debt is because in the event that I have a catastrophic event and need to declare bankruptcy, the credit card debt could disappear or be mitigated while home secured debt would be paid one way or another even if it meant the bank kicking me out of the house to recover it. And at 0% it is my lowest available interest rate and deserves the bulk of my more liquid debt.

Since mortgage interest is a deduction and not a tax credit, you can only claim a tax savings against money you don't have anymore. I'd much rather have the money (in my case, about $600 saved by the end of the year) than pretend along with the IRS that I never earned that $600 in the first place and shave $120 off my taxes. Depending on my bracket at the end of the year this may or may not be a good move, but most years my first mortgage interest makes it a moot point.

The reason why I'm so comfortable doing the 0% transfers is that in the case that anything gets screwed up in my credit card, I can immediately shift the money back into the HELOC from the card company and pay in full if they jack the rate any higher than a point over prime. If I didn't have this outlet, or enough money in the bank to pay the lump sum of the 0% loan in full, I wouldn't take the risk of being jacked up to default rate (25%+). Even a month of interest at default would negate any benefits I might have made over the ten months.

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