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Equity Line of Credit Tax Advantage
Home Equity Loans - For You?

eq·ui·ty n. pl. eq·ui·ties: The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.

The most common uses of the home equity loan are to pay for college tuition, consolidate your bills in to one convenient payment, do major home construction, purchase a car, boat or RV, or make investments. Use your home equity loan for furnishing/remodeling your home, business, or get cash out for other purpose.

Cash Out Plans - Refi vs Equity
When you decide whether to do the cash-out refinancing option, keep in mind that:
1. You have to pay closing costs when you refinance your loan;
2. You don't have to pay closing costs for a home equity loan.
3. Closing costs can amount to hundreds, even thousands of dollars.

If your current mortgage is at a lower interest rate than you could get now by refinancing, it's probably better to get a home equity loan.

Private Mortgage Insurance
You'll have to pay private mortgage insurance if you end up borrowing more than 80 percent of your home's value. It might be cheaper to take out a home equity loan.

Paying off high-interest credit card debt.
Paying a lower interest rate and taking a tax deduction is smart but lengthening the time it would take to pay off the credit card debt may not be. Why take 30 years to pay off credit card debt that could be wiped out in five or 10 years using a shorter-term home equity loan.

Home equity loans programs may consist of minimum withdrawal requirements when you open your account or maximum withdrawal requirements after your account is opened. Gaining access to your credit line with checks, credit cards, or both may be possible with certain plans.

Many home equity plans set a fixed time of draw when you can make withdrawals from your account. You may be able to renew your credit line once the draw period expires.

Tax Advantage
Interest paid on your account may be tax deductible on the first $100,000 of home equity indebtedness and up to 100% of your home's value. Always consult with a tax advisor regarding your particular situation.

Rate Comparison
It pays to check with several lenders for the lowest rate. Compare the annual percentage rate (APR), which indicates the cost of credit on a yearly basis. Be aware that the advertised APR for home equity credit lines is based on interest alone. For a true comparison of credit costs, compare other charges, such as points and closing costs, which will add to the cost of your home equity loan. 

In Review Search for a lower loan amount with payments you can live with. Shop for a low rates. Carefully examine the various loan programs offered and don't be afraid to ask questions. When you consider that there are hundreds of loan programs out there, rest assured that you're bound to find a lender with a financial program that works best for you.

 

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When to refinance Income Qualification Calculator

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