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Home Equity Loans
Home equity loans are a great way
to consolidate debt or pay for a remodel by tapping into
the worth of your current home.
Home equity loans allow
you take advantage of the lowest interest rates in
years
and a possible increased tax write off.
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A HELOC is a form of revolving credit secured by the
equity in your home. This is an open ended loan that can
be paid down or charged up for the term of the loan,
much like a credit card. The interest rate fluctuates
(typically monthly).
With a HELOC, your lender will approve you for a
specific amount of credit - the maximum amount you may
borrow at any one time under the plan. In determining
your credit limit, your income, debts, credit history
and other financial obligations will be reviewed. An
appraisal will be required on your home to determine the
home's market value. Your credit limit will be based on
a percentage of your home's appraised value, which is
then subtracted from the balance owed on your existing
mortgage.
When you take out a HELOC, you pay for many of the same
expenses as when you financed your original mortgage,
such as an application fee, title search, appraisal,
attorneys' fees, and points (a percentage of the amount
you borrow). Most HELOCs have a fixed period (5, 10,
even 20 years) during which you can borrow money.
Typically, you will use special checks or a credit card
to draw on your line. You will be required to make a
minimum payment each month – usually the interest that
accrued during the draw period. However, the interest
you pay is usually tax deductible.
At the end of your "draw period," you will be required
to pay off the loan, making monthly payments on the
principal and interest.
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