2006-10-18 18:26:14 · 11 answers · asked by russuntalan 1 in Business & Finance ➔ Credit
There are a number of myths regarding Home Equity Loan:
Myth 1. Second mortgage comes after the first mortgage
Although home equity loan is commonly referred to as the second mortgage, it is not necessary that you have a first mortgage. One can own a house free and clear, and still take out a home equity loan.
Myth 2. Home equity loan is used for expenses toward the home
Although the loan is security by the home, the money from a home equity loan does not have to be used toward the home. The fund can be used to purchase a car, pay bills etc.
Myth 3. You can only borrow up to the fair market value of your home
Many mortgage lenders are willing to let you borrow 10-15% higher than the fair market value. The decision is highly dependent on the borrower's credit rating.
One main reason that people taken home equity loan is because the interest is deductible and could help reduce your tax liability. Interest payments on personal loans such as car or credit cards are not deductible. In other words, you can take out a home equity loan to consolidate your personal debts and have Uncle Sam help you out by reducing your income tax liability.
The interest on home equity loan is deductible up to the lesser of $100,000 or the difference between the fair market value of the home and the remaining of your first mortgage. If you have no first mortgage, then it will be the lesser of $100,000 or the fair market value of the home.
Best wishes.
2006-10-18 20:05:17 · answer #1 · answered by JQT 6 · 1⤊ 0⤋
Its the amunt equal to Value of your house less debts. In other words for a recently purchased house - your purchase price minus actual loan amount. Usually you are asked to put 10-15% down payment and that is the equity you have in the house. Now secondary lenders give you loans based on this amount known as Home Equity loan.
It makes more sense if you had been paying for several years on the house and the house value has appriased then you can use the home equity to get the loan. Usually the interest paid on home equity is tax deductible and therefore its more beneficial.
2006-10-18 18:33:14 · answer #2 · answered by Scorp 2 · 0⤊ 0⤋
when you buy a house, as you make payments you start to build equity. equity is sorta like a cash value you have invested into the house. when you pay off the loan, the equity value will equal the house value. an equity loan is a loan in which you use the equity of your house as collateral. if you are in financial difficulties, getting an equity loan is not a good idea because if you default on it, it could become a second mortgage. you can lose the house
2006-10-18 18:34:45 · answer #3 · answered by oldguy 6 · 0⤊ 0⤋
Let's say you bought a home in San Francisco 6 years ago for $350,000. Your home is now worth $850,000. Any bank would be glad to give you a loan, because you have $500,000 equity in your home ($850,000 - $350,000). That's an equity loan. The collateral is your home. If you don't repay the loan as promised, the bank can take your home and sell it to get their money back. So, because it's such a secure risk for the bank, the bank will give you a good interest rate on the loan they give you. So a home equity loan is a good thing, in that it's a low interest loan.
2006-10-18 18:32:20 · answer #4 · answered by Anonymous · 0⤊ 1⤋
....also known as a second mortgage.
It's a loan secured by your equity in your home.
Equity is the difference between the market value of your home and the amount owed on any mortgages and liens.
If your home is worth $250,000. and the mortgage is $100,000. then your equity is $150,000 and the lender will take that as security for a loan.
2006-10-18 18:35:51 · answer #5 · answered by Jack 6 · 0⤊ 0⤋
This is a loan that is secured by the amount of equity you have in your home, which is the difference in what you owe and the current value of your home. It is usually a second mortgage that helps you to do a debt consolidation to reduce the number and amount of your payments and interest.
The amount of interest paid for the year is deductible on income taxes.
2006-10-18 19:04:07 · answer #6 · answered by Big mama 4 · 0⤊ 0⤋
It is a mortgage. You are using your house as collateral to borrow money. If you have a $200,000 house and you only owe $20,000 on your mortgage, the bank will gladly lend you up to $180,000 because that's what's left over from the value of your house. If you don't pay the loan back, they take your house. Hope that didn't sound scary, that's technically the way it works. Home equity loans can be very helpful for many people.
2006-10-18 18:30:26 · answer #7 · answered by billysimas 3 · 1⤊ 2⤋
A home equity loan allows you to borrow money on the money that you have paid into your home, not including the interest you have paid. It is a second loan on your home, and until recently it was not legal in Texas.
2006-10-18 18:31:09 · answer #8 · answered by ineedonebuddy 3 · 0⤊ 1⤋
a loan that matches the equity you have in the home
2006-10-18 18:30:11 · answer #9 · answered by jgmafb 5 · 0⤊ 0⤋
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2006-10-18 18:50:14 · answer #10 · answered by Anonymous · 0⤊ 0⤋