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03 Dec 12 Home Equity Line of Credit Tips for the New Year

Some people are unaware that home equity lines of credit are considered a “2nd mortgage” and thus you must already own a house to be eligible for this type of financing. These home equity lines are considered a second mortgage because the home is used as collateral for lending purposes. Using a credit line to borrow against the equity in your property has been a popular in the United States for the last few decades. Today, 2nd mortgage lenders are extending these HELOCs through several types of loan programs.

Tax Deductibility on Home Equity Interest

Smart Home Equity published a good article about tax deductibility on the topic of home equity-credit lines. The issue of deducting interest on loans up to $100,000 has become a concern as many borrowers are not clear about limitations. We strongly suggest discussing this with a CPA who is well versed on the mortgage interest deductions for 2013.

You will find most loans come with variable interest rates, some come with attractive low introductory rates, and a few come with fixed rates. You also may find most loans have large one-time upfront fees, others have closing costs, and some have continuing costs, such as annual fees. You can find liens with significant balloon payments at the end of the term and others with no balloons but with higher monthly payments. The bottom-line is that there are home equity products that make sense for your situation and loans that do not make sense for you financially as well.

The FTC reminds us to review the home equity contract carefully before you sign it.  Read the FTC warning about home equity lines of credit.


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