paying off credit card debt High with a home equity loan can certainly help financially troubled families make ends meet. And in some cases, interest on home equity loan can reduce your tax liability.
Equity loans can work several different ways. The first option is for a fixed term and a fixed amount. Usually these mortgages are taken for a period of five to twenty years. Each payment is the same as the loan is paid off at the end of the period. For example, you borrow $ 20,000 for ten years at a fixed rate and at the end of a ten-year loan is paid off.
Another alternative is a line of credit secured by your house. The credit line can be increased and decreased as a credit card balance does. The monthly payment is usually based on the 1.5% to 2.5% of the balance. As with a credit card, this balance can go on almost indefinitely as long as the borrower pays interest and a small amount of the loan every month. Many organizations will end line of credit for ten years and require the balance paid over the next ten years.
Lenders today allow borrowers to borrow up to 100% and even 125% of the value of their home to consolidate debt. This means that when the homeowner sells the home, there is little or no equity to pay the cost of home sales. These costs can be up to 10% of the sales price of the home when the realtor fees and other costs are added.
And unlike credit card debt, equity needs to pay off when you sell the house.
It can leave you in a hole if the first and second mortgages exceed the value of your house. This can be a serious problem if you are forced to move or you just want to reduce your premises. In the light of paint effective home ownership, many borrowers might be better to look for a low interest credit card.
Most lenders want equity issue line to stop financing and start payments for ten years. It means that at the end of ten years that you no longer have access to the line and there will be a monthly fee just like a mortgage. Also, lines of credit usually have adjustable interest rates. Typically, such loans will adjust with the prime, so a time of rising interest rates, you can expect to pay more each time Prime rate increases.
In the event of a bankruptcy, the homeowner will continue to pay on a home equity loan or face the possibility of foreclosure of the holder equity loan. Mortgages are not wiped out in bankruptcy, which is credit card debt.
how many home equity loans led foreclosure? According to the National Home Equity Association :.
“About 2 percent of the home equity borrowers default on loans and end up in foreclosure proceedings This talk of 1 percent for prime loans and 3 percent state mortgage loans.”
This is logical because most homeowners want to protect their homes and leave unsecured credit cards go unpaid. But what happens when home equity loans used for debt consolidation? Consumers just run up their credit cards again? Some lenders going to put pay credit cards with checks sent directly to the credit card company. Some have even cut the cards up.
Just how much interest deductibility means that the average borrower is subject to discussion. Consider the facts.
According to a recent study, the typical non-prime borrower is 48 years old and have an annual income of $ 34,000. And most of these loans are made to strengthen the high-interest debt or finance higher education of the child
Source :. National Home Equity Association
Obviously, the benefit of the mortgage interest deduction, a family must itemize their tax returns. At low income levels, very few returns itemize deductions, but at very high income levels, almost all do. So, even though most of the wealth of low-income levels in the form of housing, the mortgage interest deduction is hardly used.
For the homeowner to benefit from the mortgage interest deduction (the amount of interest you paid on a mortgage last year) you will have enough itemized deductions to the total amount higher than The standard deduction devices. Tax laws provide for interest deductibility under certain circumstances. It is important that you understand when it is not tax deductible. There are limits on the amount of the second mortgage. Dealing website at http://www.irs.ustreas.gov/prod/forms_pubs/pubs/p93602.htm to review the rules on interest deductibility.
© Gary R. Crum 2007 All Rights Reserved