Home Equity Loans – second mortgage

stephanie s asked:


My husband and I took out a home equity loan last year. Is the interest tax deductible?

Gail

Hans Sept asked:




Our home is the place where we spend most of our time. It has great sentimental value to us. However, it can also be a great asset. It can take your life time to pay for your home. As you have paid for your home it has continued to increase in value. This equity can be used to obtain a loan or a line of credit that can help you get through financially challenging times. There are many other credit options such as various types of loans, or a credit cards. The disadvantage to these is that they charge huge amounts of interest when compared to using the equity in your home. This line of credit provides an extra amount of money at a much lower interest rate than other types of credit. It may even be be tax-deductible therefore it is growing in popularity; this feature is not available with other types of credit.

A loan using your home as collateral can help you out of a troubling financial situation. There are several different places to apply for a loan. You can go to a financial institution or apply online. Online options is very convenient and usually pretty fast. The home equity loan can be used to consolidate other loans. Since it has a lower interest rate it can save you quite a bit in the long run. This can reduce your payments and also help your credit score.

If you desire to remodel your home or make renovations to your home then taking out this line of credit can be the best way. For instance, many of us want to modify the kitchen or add some features to the bathroom and a loan can provide you with the money to make the needed changes and increase the value of your home. Therefore a home equity loan is equal to making a long term investment.

The cost of higher education is becoming more and more expensive. Your home equity is a valuable asset that you have readily available which can help you obtain funds for educational purposes. You can use the line of credit to pay your for tuition fees or for other educational expenses. This is very effective as it will help you avoid higher interest rates and plan according to your budget.

A home equity loan can be used for anything that is needed. For instance it can be used to pay off medical bills. There are no stipulations to how it can be spent. Therefore the equity in your home is a beneficial asset for you to use for whatever you may need.

Vivian

dreamwalker2001 asked:


Lately I haven’t been working as many hours because of cutbacks so I’ve fallen behind in a few payments. So I’ve tried to obtain a small loan from a few banks with no luck. I’ve been paying my morgage on time for more than 15 years and never considered home equity. Why are these banks telling me I can’t be approved for a small amount but they’ll let me borrow 10 times as much with a home equity loan?

Dora

Mary Wise asked:




Working as a financial consultant, I get hundreds of emails and calls everyday inquiring about many different financial products. I have noticed that home equity loans are a very common source of doubt for my customers. As regards home equity lines of credit… well, let us just say that great many people do not even know of their existence. It is a real pity that these products are not better known because they are incredibly versatile as they can be used for many different purposes. They are also very cheap sources of finance.

That is why I decided to write an article on the basic concepts of both of these fantastic financial products.

Home Equity Loan

Home equity loans are usually referred to as second mortgages, because they are secured against the value of the house. The borrower uses the equity on his property as a collateral for the loan. So… what does equity mean? Equity is the different between the property’s market value and the remaining balance of the mortgage and any owed debts related to the property. If you have finished paying the mortgage on your home (or never applied for one), then the equity on your home is 100% of the real value. If you have already paid 40% of the home, then the equity will be worth 40% of the real value of the property.

Loans based on the equity on your home are marvellous. They are granted almost to any home owner and their terms are usually extremely favourable. Not only are the interest rates very low, but they are also deductible!

What use can the borrower give to the money? Well, that is the beauty of this type of loan. You can do anything, the world is your oyster! Whether you need to remodel your house, add rooms to it, go away on a long vacation, purchase a used or new car, or even acquire a second property, home equity loans can help you in so doing. There is no limit to what you can do, only your imagination.

Repayment plans range from 5 to 20 years, and as you might have noticed, they are somewhat shorter than the repayment plans on mortgage loans.

Home Equity Lines Of Credit

This credit is also know as an open-end home equity loan. It is also a loan based on the equity on your home, but it has one major difference: you decide how much and how often to withdraw funds. The lender sets a limit on how much can be withdrawn, but once this amount is repaid, the borrower can take out funds again, and so on.

Lines of credit based on equity are perfect for you if your monthly income is variable (as often happens with self-employed people). There is a minimum monthly payment which consists of the interest rate if you have not withdrawn any funds.

If what you are looking for is flexibility, then a line of credit will be just perfect for you. No fixed monthly payments, instant availability of funds at your best convenience, among other advantages.

Now you are fully aware of what these two equity based credit products have to offer, it is up to you to choose the one which best meets your requirements.

Margaret

Kate Ross asked:




There are many issues involved in this decision. These issues include the amount of money you can save on interests, the possibility to loose those savings due to changes in market conditions, the possibility to end up paying even more than what you projected, the possibility of being unable to repay the monthly installments and having to refinance your loan.

Home Equity Loans

Home equity loans are secured loans that guarantee the lender repayment of the loan with the remaining equity on your home. Equity is the difference between your home value and the outstanding debt guaranteed by the property (usually a home mortgage). The secured nature of these loans provides the borrower with many benefits.

For starters, with home equity loans you can obtain higher loan amounts than with unsecured loans. Moreover, you can obtain longer repayment programs and thus, lower monthly payments than with unsecured loans. But most importantly, these loans have lower costs because the interest rate charged is significantly lower than the rate charged for unsecured loans. All of this is due to the lower risk that the use of collateral implies for the lender.

Interest Rate

As Explained above, due to the lower risk, home equity loans feature lower rates than almost any other kind of financial product. These loans offer rates lower than credit cards, store cards, unsecured personal loans, pay day loans, cash advance loans, overdrawn agreements, etc. Probably the only loans that feature lower rates are home loans and some subsidized student and business loans.

Not only the interest rate is lower than almost every other financial product, it also comes in two shapes. You can obtain a home equity loan with a fixed interest rate or with a variable (adjustable) interest rate. There are some differences between these two kinds of interest rates than can be very important when it comes to deciding which loan best suits your needs.

Variable or Fixed

A fixed interest rate stays unaltered through the whole life of the loan which in turn implies fixed monthly payments over the whole life of the loan too. This provides a lot of certainty to the borrower that can budget the loan payments with confidence knowing that they will stay the same each month. But, it doesn’t provide such certainty to the lender who can suffer from inflation and loose money to a fixed rate. That’s why fixed rates are always higher than variable rates at any given time.

Variable rates on the other hand, will change every three or six months according to the market conditions. Almost always these changes are moderate and don’t alter monthly payments too much. However, if an increasing tendency subsists on the market, a variable rate can turn a home equity loan into a very onerous deal.

Bernice

Joe asked:


We plan to use a home equity loan to rebuild our studio, putting the loan money in a separate bank account and using that account solely for “construction costs” to ensure the interest remains tax-deductible.

Question 1: We’re paying an architect to design the building and we have to pay the city a permit fee to review and approve the design. Are these two fees considered part of the “construction costs” of a building so we can use the loan to pay these without worrying about the IRS coming after us?

Question 2: Given this scenario, would it be wiser to use a Home Equity Line of Credit so we only borrow what we need when we need it? My concern (as always) is variable interest rates on the lines of credit, so I’d get a lower interest rate today, but it might be higher next year.

Thanks!

Joe

Leon

Zeeshan Syed asked:




Getting home equity loans with bad credit is not really a big deal. In reality, this is easier than you might think. This article contains some information that will help learn some of the the hows and whys invovled in getting home equity loan with bad credit.

It is commonly assumed that if you have bad credit, you will not quality for loans. Be it auto loans, personal loans, construction loans or home loans etc. This is not necessarilty true, especially when it comes home equity loans with bad credit. Home equity loans borrows from the equity that you already possess in your home. Most of the creditors or lenders, however you call them, they are actually more than willing to take this risk of providing you a loan even with bad credit. Why? That’s because they know that, if required, they will still be able to take over your home and get their money so for them it’s a pretty safe game isn’t it?

If you are concerned about getting home equity loans with bad credit then here is some information that will help you feel better and be less worried:

Getting approved for home equity loan is easy.

Even if you have a bad credit, qualifying for home equity loans is not that hard. The only thing your bad credit score will do is that it makes sure that you end up paying higher interest rates than you actually would if you had a good credit score. While this may not sound pleasing but it is better than not qualifying for the loan at all.

Creditors want business with you

A number of lenders are out there who will be looking forward working around your credit issues and problems. In fact, the majority of the lenders today, known as sub-prime lenders are out there, waiting for people like you and with issues like you have, to come and get in touch with them. You can find such sub-prime lenders online by doing a little search on different search engines or by browsing through our website. The sub-prime lenders specialize in getting loans for people who have bad credit. If you work with these kind of lenders, you will increase your chances of getting approved quickly and finding a home equity loan program that suits your financial situation and needs.

Sean

Max Suther asked:




Home equity loans are a great alternative if you need to borrow large sums of money or if your credit score is not that great. By putting up you home as collateral, you can borrow most of the equity you have built up over the years.

Banks like to write home equity loans because they know the value of your home and know that they can collect should you default on the loan. Of course you have a great incentive to keep your payments current because it is your home that is in risk.

The good points of home equity loans