Secured Home Equity Loans - Things You Should Know About Home Equity Loans
Written by: Carrie Reeder
Your Equity Is Your Security
Your home's equity is the basis for your home equity. You can
choose to access it with a variety of loan terms. Refinancing
with a cash out will lock in long term rates. A second mortgage
pulls out part or all of your equity while keeping your original
mortgage intact. This is nice if you have a low interest home
loan. Finally, you can create a line of credit based on your
equity. It acts much like a low interest credit card.
While loan terms affect your rates, so will your property's
value. Using all of your equity will bump up your rates. Don't
forget to factor in your home's appreciation when considering
your property's value.
The PMI Factor
Private mortgage insurance may be required with some lenders,
especially if you have a prime loan. If you have less than 20%
equity in the home, then expect to pay premiums. But sub prime
lenders don't require insurance. And in some cases, if you use a
separate lender for your second mortgage, you won't have to get
insurance either.
Interest Is Tax Deductible - Sometimes
Interest from a home equity loan is tax deductible in many
cases, unlike other forms of credit. There are caps on your
income and the property value. For example, you can't write off
interest for a loan that exceeds your property's value. There
are also limitations on what the loan can be used for in some
cases. Before using this deduction, be sure to read the IRS
regulations.
Home Equity Loan Rates Vary Between Lenders
As with every other type of credit, rates will vary between
lenders. Each lender will rate your application differently.
They will also have different procedures for determining rates.
To get the best deal, you have to rely on loan quotes to make
your decision. By providing just the most basic information, you
can get a general idea of closing costs and rates. Only if you
are serious about a lender should you allow them to access your
credit report.
Home equity loans can also be consolidated into one mortgage in
the future. Make sure you don't have any early payment fees that
would make this decision needlessly expensive.
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