Mortgage Equity Loan
As a homeowner, you can borrow against the equity in your home in what is known as a home equity loan. You can borrow up to the amount of equity you have in your home by using that equity (portion of asset ownership) as collateral on a mortgage equity loan. Home equity loans are a good alternative to personal loans and other high interest loans due to the fact that you can borrow large amounts of money and pay low interest rates on the loan. A home equity loan is a secured loan. The equity in your home secures the debt to the lender. Types of Mortgage Equity LoansThere are two basic types of home equity mortgage loans that you can apply for. There is the standard home equity loan which pays out in one lump sum. There is also something known as a home equity line of credit (HELOC) which is a revolving line of credit that you can borrow against at will. A home equity line of credit works much the same way as a cash advance on a credit card, only the interest costs less and there are several other advantages. The most common reasons that home owners seek a home equity loan are to do home repairs and remodeling, pay college or medical bills and home equity loans are also frequently used for debt consolidation. In all of these cases, a homeowner can save a significant amount of money on interest payments alone when compared to traditional loans that are available for these types of situations. Take the example of debt consolidation. If you are carrying a large balance on credit cards or other revolving line of credit, it may be beneficial to consolidate your debt in to a home equity loan. The double digit interest rates that have been keeping you from making a dent in that debt are much lower in a home equity loan. Benefits of a Mortgage Equity LoanAnother excellent benefit of the mortgage equity loan is that the interest payments are usually tax deducible. Because a home equity loan is essentially a second mortgage, you can enjoy the same tax benefits as you do in your primary mortgage. This is not without certain restrictions. At this time you are only able to deduct the interest on a home equity loan if you itemize your deductions on your taxes and borrow less than $100,000. For the specifics of tax benefits in your unique situation, you should consult a CPA. In many cases, a home equity loan is an ideal solution for the homeowner. Still, it is wise to know what you are committing yourself to. Because your home equity loan is secured by your home, in the unfortunate event of a default on the loan your property can be sold by the lender to pay off the debt. Also, your loan does count towards your outstanding credit line and by borrowing too much you can make it difficult for yourself to qualify for additional lines of credit. Many homeowners find that home equity loans offer them financial flexibility and allow them to save money that would otherwise go towards interest payments on other types of loans. If a home equity loan sounds right for you, shop around for the best rates and terms. |
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