Home Equity Loans and Lines
Don’t forget, with all refinanced mortgages, unless you do shorten the term, you begin again with a 30-year mortgage. Add the cost of the new loan to what you’ve already paid before the refinance, and your bottom line could be more than you can afford over time.
When considering a home equity loan, think through these issues: Does this home equity loan offer the lowest interest available to finance this purchase? Is the introductory rate much better than the long-term rate of the loan? Will the interest be tax deductible? One way to be sure is by consulting a tax advisor.
Is the risk of putting the home on the line a worthwhile tradeoff to achieve this financial goal?
Other considerations are the tax implications — or lack thereof. As you probably know, part of the beauty of a home-equity loan is that up to $100,000 of interest ($50,000 if you’re married but filing separately) is tax deductible. But those rules don’t apply to high LTV loans. Any interest paid for the amount by which the loan exceeds your home’s value doesn’t qualify for the tax break.
In order to qualify for a no income verification home equity loan you will, in most cases, need good credit and a high credit score. Expect to pay a higher rate for this type of loan as opposed to a traditional loan in which you have to document your income. Also, even though a no income verification loan does not require you to document your income, some lenders may require that you have a certain dollar value of assets on hand which must be verified.
Not all lenders have this requirement though - some lenders offer a program called NINA which stands for “no income no assets” meaning you do not have to document either. Loan guidelines and rates vary from lender to lender so it is a good idea to shop around to increase your chances of getting the best deal available to you.
With a line of credit you apply for an amount which you may borrow against your home value however you do not have to borrow the entire amount at once. For example, you may receive a $40,000 line of credit but only need $6,000. In this case you can just take out $6,000 and save the remaining $34,000 (which you are not paying interest on) for a later date when you need it. Repayment terms are usually pretty flexible and may include interest only payments for a certain period of time. Online sites like LoanWeb or E-loan offer home equity lines of credit.
However, it must be remembered that such loans are not appropriate for everybody in every situation. They should generally only be used for large projects of long term needs. For smaller loans, it may be better to look at other options such as personal loans. The rate and terms, as with all loans, will vary depending on your payment history and the amount and length of the loan.
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