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Secured Home Equity Loans – Things You Should Know About Home Equity Loans
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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