Home equity loans allow homeowners to borrow against the equity they possess in their homes. Gaining popularity around the mid-1990s when changes in the law took away the ability to deduct interest on a number of different consumer purchases, this financial instrument allows homeowners to borrow up to $100,000 and still retain the ability to deduct interest for tax purposes. Homeowners can benefit significantly from the features offered with a home equity loan. Lolo MT residents can access two different types of funding as it regards these loan products.
Two Types
Fixed-rate loans and lines of credit are two distinct types of home equity loans available to consumers. Generally speaking, you can access a home equity loan with loan terms that extend from 5 to 15 years in length. These loans must be paid back completely in full if the home against which the loan is borrowed is sold.
Fixed-Rate Loan
With a fixed-rate loan, you’re required to repay the entire lump sum of the loan over an extended period of time with a fixed interest rate that does not change throughout the life of the loan.
Line of Credit
Working like a credit card, a home equity line of credit (HELOC) comes with a variable rate and gives you a preapproved amount of spending from which you can withdraw money as necessary. The monthly payments are based on the existing interest rate and the quantity of money borrowed. They include a set term with the total amount of the loan at the end of the loan term.
Benefits
A home equity loan can provide you with a very convenient source of cash when you need it. Generally, these loans offer lower interest rates than you will find on many other types of loans. One reason why consumers will borrow against the value of their home is to pay down credit card balances with a low fixed rate. As previously mentioned, you can deduct the interest on these loans at tax time.
Home equity loans offer homeowners a truly convenient way to pay off debt that is bound to higher interest rates with a single monthly payment linked to a lower interest rate, while at the same time taking advantage of available tax reduction benefits.
