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
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
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.
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.