Have you been looking do some home improvements? Do you want to take that dream vacation? We all have things we’d like to do but feel we can’t because we don’t have the money. Sure we could work or save more, but that takes time. What do you do if you want or need money now?
For people who need money and have been building up equity over years of home ownership an equity loan could be just what the doctor ordered. But before you commit to anything it’s important that you take the time to consider all sides of the decision before you move forward.
If you haven’t heard the term “home equity loan” before then you may also know it as a second mortgage. As such it is much like a mortgage or other types of loans, you get a certain amount of cash or a line of credit and you pay back that money over time, plus interest.
So what exactly makes a home equity loan unique? The first thing that sets them apart is how you secure them, by putting up the equity you’ve built up over the years paying off your home. Equity can be quickly defined as the value of your home minus whatever you still owe on your original loan. Every dollar you pay that isn’t interest goes towards building your equity. Equity is what makes buying a home a good investment.
Other unique aspects of these loans flow from this key difference. One reason people like these loans is that it’s easier to qualify for bigger loans then you would be able to get otherwise. That’s because your house is evidence of your worth so you can get money even if your credit is less than superb.
Another key factor is that the interest on a home equity loan may be tax deductible. That’s because the government treats mortgage interest differently from other types of interest. This is a nice addition to an already appealing package but don’t get too excited, the amount you can deduct is limited. It should be viewed for what it is, an extra bonus rather than a reason to get a loan.
The Potential Dangers of These Loans
As the old saying goes there’s no such thing as a free lunch, and if you are ever offered money you should be especially careful about what strings are attached. No business gives out money without hopes of turning a profit, and lenders make money off home equity loans through the fees that borrowers have to pay over the life of their loan.
Another common pitfall is assuming that all of the interest on these loans is tax deductible. This isn’t the case, the reality is that the only interest you can be certain is eligible is what you pay on the first $100,000. Don’t assume anything here, talk to a tax professional for the specifics regarding your case before making a decision.
Getting The Money You Need Without Unnecessary Risks
A home equity loan is a tool, and as with any other tool there are proper and improper ways to use it. People who think of these loans as free money get into trouble, while the people who do their research and carefully figure out how much they can afford to pay in terms of fees and interest are likely to end up satisfied with their choice.
Never take out a loan until you have examined your finances closely. A successful loan demands good long term thinking. If you are a homeowner who needs money now one of these loans could be the perfect solution, but you won’t know what’s right for you until you’ve determined how much you can pay later for the money you want now.
Mortgage Capital Associates (MCA)
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Mortgage Capital Associates has been in the mortgage loan business since 1982 serving customers in 31 states and our mission has been to fulfill the home buyer’s dreams of ownership.
With 30+ years of mortgage lending experience, our reputation is based on fast delivery of industry best rates and closing your loans without any surprises. Our Mortgage Loan Consultants are extremely knowledgeable and able to tailor a mortgage to meet the individual needs of our customers. They use the latest comparative analysis software to research and compare a wide variety of loan programs and best option to meet your individual need and financial goals. Our state of the art loan software streamlines the processing of your loan, ensuring quick approvals and fast closings for you.
MCA has over 25 years of customer satisfaction and our integrity is reflected in our “A” rating with the Better Business Bureau.
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