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 Loans
There 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 Loan
Another 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
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.