Borrowing Against Your Home has Its Benefits

Borrowing Against Your Home has Its Benefits

With fuel, food and home prices fluctuating, families are finding that a home equity loan can provide much needed financial relief to unexpected debt and large family expenses. Because an individual’s home is, most likely, their largest asset, homeowners are using the equity in their home to fund a variety of items like medical bills, education and even their escalating living expenses. Take a closer look at the basics and the benefits of tackling current and anticipated debt by borrowing against your home.

Before you begin the home equity loan application process with a Mortgage Specialist it is imperative to know the two types of home equity loans: fixed rate and lines of credit. Both loan types are offered with loan terms that generally range anywhere from 5 to 15 years and require the borrower to repay the loan in full if the home against which they are borrowed is sold.

Though there are borrowing and term similarities, each loan has its differences. A home equity loan (also known as a second mortgage) is a fixed amount that you borrow to be paid off over a certain number of months, while the home equity line of credit (HELOC) is a variable rate. Much like a credit card, a HELOC pre-approves you, the borrower, for a certain spending limit of which you may withdraw using special HELOC credit cards or checks. Call your banker/broker to determine which loan type (fixed rate or line of credit) best fits your needs and to discuss some of the home equity loan benefits listed below.

Benefits of Borrowing Against Your Home:

More Money for Your Effort
As you may know, loan applications are quite a hassle and often don”t provide enough monetary resources to fund large purchases like remodeling your home or sending the kids off to college. Home equity loans only require one application and can provide borrowers with an easy source of large amounts of cash.

Low Interest Rate
The home equity loan interest rate is much lower than credit cards and other consumer loan rates, which is one of the reasons why so many homeowners use their home equity loan or line of credit to pay off their credit card balances. Using a home equity loan as a debt consolidation tool is a viable option for many homeowners, yet it is important that the borrower is committed to limiting any future credit card use.

Tax Break
With a home equity loan, you, the homeowner, can borrow a large sum of cash for any purpose you like and still deduct up to $100,000 of the interest when filing your tax returns. Typically the $100,000 can be increased for any borrowing used to improve your home, such as a kitchen or bathroom remodel. For example, a borrower may spend a total of $100,000 on hospital expenses and college tuition and $10,000 on a new roof, the interest on the entire $110,000 would be deductible as home mortgage interest.

Borrowing against your home has many benefits and can be tempting to use in order to splurge on expensive luxuries. To avoid the perpetual cycle of spending and borrowing, work with your  mortgage professional and conduct a careful review of your financial situation before you apply for a home equity loan or line of credit. Your  mortgage expert will not only make sure you understand the terms of the loan but also check to ensure you have the means to make the payments without compromising other bills.

Published by Seth Jacobs

Mortgage Broker, Disc Golfer and First Person Shooter Fan living in Vacationland.

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