Home equity lines of credit – Savvy options for homeowners and home buyers
Today, tapping into home equity may be the smartest way for a homeowner to finance a major improvement, pay for a college education or even consolidate debt. That’s because home equity lines of credit are the last kind of consumer loan, other than a mortgage itself, in which the interest may be deducted from federal tax returns.
During 1998, Fannie Mae conducted its annual National Housing Survey. Findings indicated that of all adults surveyed, 40 percent used their home equity financing to pay for remodeling, while 26 percent paid off other debt. And, one in four of those between the ages of 40 and 54 had a current home equity line of credit or loan. There are smart reasons to join in this growing trend.
When a homeowner borrows against the equity, or net value, of the home, the interest paid is often 100-percent tax deductible. Since the interest rates on these loans are generally lower than on credit card or installment loans, the monthly payments are also lower”sometimes as much as 30 to 70 percent lower than on other types of loans.
With a line of credit, homeowners pay nothing until they use it, and some products have a “no-cost” feature wherein the initial appraisal and application fees are waived once the line of credit is approved. And, since no payments are due until funds are accessed, having a line of credit in place may be viewed as low-cost “rainy-day insurance” in the event funds are needed for an emergency or an unforeseen expense.
Now there is good news for home buyers as well. By “piggy-backing” the funding of a home equity line with a new first mortgage, buyers may access the funds to increase their downpayment and thus avoid the cost of mortgage insurance (MI) or jumbo pricing, or both. No extra paperwork is required to fund the home equity line, and the new homeowner receives all of the same tax-saving benefits as the veteran homeowner. (Homeowners and buyers should check with their tax advisers regarding the tax-deductibility of these loans based on their personal tax situations.)
Major lenders offer a variety of home equity financing products, and can offer simple, easy-to-understand explanations to your questions about home equity lines of credit. u
Sarah Davis is the sales manager of the Avon office of Countrywide Home Loans, a national leader in residential finance. The office is located at 30 Benchmark Road, Suite 209, (970) 748-5018. Additional information about the company’s full array of products and services is available online at http://www.countrywide.com.
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