The General Standards for Low Home Equity Loans

There are some things you should know to get as low a home equity loan as possible. A home equity loan allows you to obtain a loan by using the equity  in your home as collateral. Equity is defined as whatever funds you invested in you home to own or improve it. Thus, it is a secured loan. The property can be foreclosed if you do not pay it back. Home equity loans are variable loans, which means that the payments you make will shift over time, unless you are explicitly getting a fixed loan. If you loan is not fixed, then your payment can vary widely based on predetermined intervals according to market rates. You will want to get a loan with as low an interest rate as possible. This is true even if the interest is tax-deductible, as it often is.

Getting a Good Rate

The biggest two factors for getting a good rate is the amount of equity on your house and your credit score. If you have a lot  of equity in your house and a high credit score, the interest rate the bank will offer you will be lower. A high income and low debt to asset ratio will also help you get a better score. Your credit score will be better if  you performed well on loans in the past. As you own a home, your performance on that loan will have the greatest effect on credit score so it is important to make sure your mortgage is in good standing.

How Much Can You Borrow?

Your house’s value and your mortgage debt changes over time so the amount of equity on you house also changes. Thus, when house prices are high and the less you owe on you mortgage, the more you will be able to borrow. You might be able to borrow from 80 to 125 percent of your house’s value. To find out how much you will probably be able to borrow, multiply your home’s value by 0.80 and subtract the amount of money remaining on your mortgage.

Tax-Deductible Loans

You should find out if  your home equity loan rate is tax deductible. Interest that you have paid on equity debt is often  tax deductible up to $100,000, or $50,000 if you are not single and filing separately from your spouse. You cant deduct interest that is greater than your property’s value. If you are using the loan to renovate and improve your home, it might be considered an acquisition debt, not  a home equity debt, so the debt might be tax-deductible below the cost of the improvements. Home equity loans are often taken out to pay for big items such as cars, and tuition. Getting a home equity loan to pay for such items is better than paying for them out of pocket if you can write off part of the price on taxes.

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