Home Equity

Loans

Do you need to tap into your home’s equity to pay for a home remodeling project or to pay off credit cards?

A home equity loan can either be a fixed rate loan or an adjustable rate loan that is secured by the equity in your home. The fixed rate home equity loan can be amortized over a 30 year period (keeping the payment low), but generaly has a Balloon Payment due in 15 years or less. In other words your payment is based on 30 years, but the note is due in 15 years. Any balance at that time must either be paid off or refinanced. A home equity loan can also be a line of credit with an interest only payment. The term for the line of credit is usally based on 20 years with a draw period of 5 or 10 years. With the line of credit or HELOC (home equity line of credit) you are only billed monthly interest on the money you are using, NOT the limit of the line.  Since you are paying interest only on the funds you are using, you can control your monthly payment. Any principal reduction you make in a given month is reflected in your next month's statement.

The process for a home equity loan is similar to your first mortgage. The closing costs are usually lower and, although the interest rate is higher on a home equity loan, the interest paid is 100% tax deductible just like your first mortgage interest.