HOME EQUITY LOANS
Home Equity Loans have become an increasingly popular way for consumers to borrow money, especially with the continued increases in interest rates on credit cards. Your home equity is the percentage of the home that you own; it’s the difference between the current value of the home and the amount you still owe on your mortgage.
Thanks to the combination of low interest rates and skyrocketing property values, home equity loans are more popular than ever. The value of home equity loans taken out by Americans has doubled in the last two years, and the market for them shows no signs of slowing down. Obtaining a home equity loan is usually a fairly simple process involving some paperwork, a credit check, and a home appraisal, and the entire process can often be done in just a few weeks. Lenders will often lend up to 80% of the value of the home’s equity, and some lenders will even lend up to 125% of a home’s equity.
Home equity loans offer several advantages over other types of consumer loans. Interest rates tend to be lower, and are often half the rate of credit card loans. The interest on a second mortgage is usually deductible, something other types of loans haven’t offered in more than twenty years. A loan in the form of a line of credit can offer the opportunity to borrow money on a revolving basis. And the payment schedule can be arranged over a specific amount of time, which offers the homeowner the convenience of scheduled payments as well as affordability.
Home equity loans are quite useful, and have several advantages over other types of loans, such as credit card loans or more traditional secured loans. The biggest advantage is that the interest on home equity loans is tax deductible. The interest rates on home equity loans are already pretty competitive, but the addition of the tax deduction makes them pretty hard to beat. But do you have to use a home equity loan to improve your home in order to qualify for the tax deduction?
Many people do not realize that improvements on your home are not necessary in order to take the tax deduction. While home improvement is probably the most popular reason for taking out a home equity loan, many people use them for any one of a number of other reasons -- buying a boat or RV, taking a dream vacation, or even just using the money for to debt consolidation. The relatively modest interest rates charged for home equity loans are far more favorable than the 20% or so charged by many credit card companies, making debt consolidation a pretty smart use for a home equity loan.
Whatever the reason for taking out a home equity loan, be it home improvement or otherwise, the tax deduction makes it a pretty good way to borrow money. |
