The Popularity of Home Equity Loans and Lines of Credit
November 8th, 2007
Home equity loans and lines of credit have really become popular as of late. Why is that? Those two options usually have very great opportunities. You could really use home equity and lines of credit to your advantage, but you need to know why and how. Interest rates and tax deductibility are two major factors. So let’s take a look at this a little further. Hopefully you can use it to your advantage.
The Rates
What works differently with lines of credit and home equity loans is that those two things are secured by your personal residence. You are using the equity that you have begun to build up in your home. So, essentially, you are using what you have earned. Because of this, you will find that the interest rates you can get are lower than those that you will find on your credit cards. So that is an added bonus.
Deductibility
You are helped out by a helpful tax deduction on your home equity debt. This is good for up to $100,000. This was really big in the 1980s, but it started to have a bad effect on the economy. The options were raise interest rates or get rid of the tax deductibility. Well, the tax deductibility was done away with, except when it was home equity debt. So with a line of credit or home equity loan you do not have to worry about a spike in interest rates when it is deemed necessary for other loans.
Are There Other Options?
As with everything else, you need to know what the other options for you are. If you do not want to do the equity thing, or get a line of credit then you have the option of cash-out refinance. If mortgage rates drop and your property value has risen then you will be in a candidate for a cash-out refinance. Cash-out refinancing allows you to refinance for more than your outstanding balance. You can use some money you get from your refi to pay off your mortgage, and then take the rest of the money to use it for the project you want to.
Research and Use
Equity loans are very good for you if you want a lump sum to use. You will then pay it off in monthly installment over a set period that you and your lender agree on. A line of credit is a pool of money that you can borrow from whenever you wish and use it for whatever you want. It is kind of like a credit card. Remember, the rates tend to be low, and you can get the money you need. Just research the different types and figure out which is best for you.
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