| Do you require some cash? For many
homeowners, a home equity loan is an attractive option for
accessing funds. Home equity loans are low-interest and
tax-deductible.
A home equity loan is a loan
against equity that has already accumulated in your home.
A loan or loans totaling $100,000 can be deducted
regardless of why you plan to use the money.
Home Equity Loans
Before considering home equity products, you should
do some research before taking the plunge. Since the home
is one's biggest asset, one should not lose the home by
becoming a defaulter.
Your first step to get the home
equity loan should be figuring out why you need the funds.
There are two options for this type of borrowing: a home
equity loan or a home equity line of credit. Your choice
between the two will be determined by whether you need the
cash up front or as a line of credit over time.
A home equity loan functions like a
regular second mortgage. When borrowing, you’ll get the
entire amount in one lump sum. You’ll then be responsible
for paying off the loan in monthly set installments.
Payments are amortized over a 15-20 year period.
If you want to take smaller amounts of
money over an extended a period of time, a home equity
line of credit (HELOC) is your better choice. It lets you
borrow the difference between the value of your property
and the remainder of what you owe on the mortgage. Like a
credit card, you can re-borrow money once you pay off your
outstanding debt. Interest on these loans is typically the
prime rate plus a margin.
You may
borrow against the equity in your home for any number of
reasons. Many do it to consolidate existing debt or
for capital to launch a business. Others need a line of
revolving credit to put their children through school.
Tax and Interest
Advantages
The most appealing feature of home
equity is tax deductibility. You can write off the
interest on loans up to $100,000. You can write off the
interest on loans up to $1 million if you’re planning to
use the money for significant home improvements or
buying a second residence.
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