Q. I am selling my home and purchasing a new home. I have plans to mortgage my existing home (which is fully paid for) and use a sizable down payment so that my purchase of the new home is a cash purchase. This is because I have considerable equity but a low monthly income, now that I am retired. What type of loan would be best for the short term -- hopefully less than one year and ideally in 60 to 80 days? I am particularly curious about an interest-only loan for the tax deduction benefits.

A. We've read your note several times and the question occurs: why are you mortgaging your existing home instead of just selling it and paying for your new home with the proceeds of the sale? Re-mortgaging your existing home is costly because you are, in effect, taking out a new mortgage that will involve typical mortgage costs, such as appraisal, closing costs, and so forth. And that loan would have to be paid off before you sold the house.

As far as finding a good short-term loan, a home equity line of credit (HELOC) would probably serve you best. This type of loan allows you to borrow money against your home, but you only pay interest on the money you use. And the payments for the first several years of the loan ‹ which is much longer than say you want it for ‹ are interest only payments ‹ therefore a little lower than a regular principal and interest payment.  Re the tax deduction benefits: they would be the same as any other deductions you would get on a loan using your home as collateral. However, if you were to have this loan for only 60-80 days, the deductions would not likely be significant enough to consider, especially if you wouldn¹t itemize deductions, otherwise. Your tax preparer could advise you on this aspect of the loan.

You could probably get a HELOC for about 8%. Some offer low introductory rates, but they would likely have prepayment penalties, so that would not help you.

And while your HELOC is a relatively inexpensive loan to set up and maintain, there are still costs involved, including an appraisal and the paperwork necessary to set up the loan.

Q. My wife and I own a house in Vermont and a second home in Rhode Island. We are deducting the interest on both home mortgages on our joint tax return. We are considering buying a boat and would like to take a home equity loan on our primary residence in Vermont to pay for the boat. Can we deduct the interest from a home equity loan as well?

A. Since you own two homes, you know that you can deduct the interest you pay on those two mortgages up to $1 million in mortgage debt. The even better news is that you can deduct the interest you pay on up $100,00 of home equity indebtedness.

We checked with a CPA, and he verified that this is true. However, we would never suggest your taking this step without first consulting with your tax preparer or a tax attorney, just in case you have a unique situation.

Have a question about your finances? Ask us at editors@interest.com.

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