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Home Equity Loans
There are a wide variety of ways to borrow money, but home equity loans have some advantages that other types of loans, such as credit card loans, cannot offer. Plus, the interest that you pay is tax deductible. This all adds up to make home equity loans a pretty useful financial tool.
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There are many ways to borrow money; the better your credit, the more opportunities you have. But all methods of borrowing money are not equal. Each type has its good points and its drawbacks. You wouldn’t want to take out a payday loan for home remodeling, for instance, as the 400% interest rates and $300-500 limits make them poor choices for that purpose. Credit card loans, with their higher interest rates, are also not the best choice for a house remodeling project.
On the other hand, a home equity loan would be ideal for that use, or for any one of a number of other uses, if you are financially responsible. Home equity loans offer certain advantages that are not available with other types of lending. Since 1986, Americans are no longer able to deduct interest on auto loans or credit card loans from their Federal income taxes. They are still permitted to do so with home equity loans and mortgages, however. This makes borrowing against the value of your home potentially useful, depending on your tax bracket. If you pay in the 28% bracket, you are essentially getting a 28% rebate on your interest. It’s better than nothing, and that’s what you get with other loans.
Despite what many people may think, the deduction is allowable no matter how the money is used on loans of up to $100,000. While many homeowners use the money for remodeling, the money need not be used for that purpose in order to qualify for the tax deduction.
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Because of the deduction and the fact that housing prices have gone through the roof in recent years, home equity lending is at an all time high. People are borrowing against their homes and using the money for all manner of things - boats, recreational vehicles, cars, medical expenses and even debt consolidation. It’s all perfectly legal and quite sensible, provided that you acknowledge that you are putting your property up as collateral. Should you default on your loan, you could lose your house in a foreclosure.
Obtaining a home equity loan is much easier than acquiring a first mortgage. An appraisal will be needed, and proof of income and a credit check are fairly routine. Many applications are approved within a couple of weeks. The funds can be taken either in the form of a fixed-rate plan, which has a repayment schedule that runs for a specified amount of time, or a line of credit, which is a revolving account that permits the homeowner to borrow money against the available limit when needed. This type of financing, also known as a HELOC, has a more flexible repayment plan which works more like paying a credit card balance. With a HELOC, the interest rates tend to be variable.
All in all, these are both useful financial tools that can be implemented in a variety of situations. At some point, most homeowners could probably benefit from one or the other.
If you have a mortgage with a high interest rate, you may wish to mull over new financing. You may be able to manage your debts and reduce your monthly loan payment. Ameriquest can make it easier to refinance now.
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