Home Equity Loans and the Recent Suspension in Deductions



Equity loan and home equity loans are one and the same. A home equity loan can also be called as, home equity instalment loans, or it can be termed as second mortgage, – it is a kind of a consumer loan. Homeowners can take a loan against the equity in their houses & this is permitted in the home equity loans. Besides all of that, in a home equity loan, the loan amount is depended on the difference between the residences current market value, and homeowners mortgage balance due. Another thing, that you will notice in home equity loan is that there is a fixed rate. But the alternative loan i.e. home equity lines of credit (HELOC’s) mostly have a variable rate.

Working of the Home Equity Loan 

A home equity loan is connected to a mortgage, and that’s why the second name is mortgage. What serves as a collateral for the lender or the loan-giver is the equity in home. The homeowner is allowed to borrow a certain sum of loan from the lender, which is based on the CLTV ratio, also known as, combined loan-to-value ratio, which is around 80-90% of the home’s market value. Besides all of that, the loan amount and the interest rates charged will mainly depend on the credit score of the borrower and also, on the payment history of the borrower. Moreover, mortgage lending & discrimination in lending is illegal.

Traditional Home Equity Loan 

Just like the orthodox/old mortgage, there is a set up of repayment terms which the traditional home equity loans have set. In that, the borrower has to pay the fixed & regular payment along with the principal and interest. And, just like any mortgage, if the loan is not repaid on time, the home could be sold off and the loan amounts are taken from the proceeds. To increase the value of your home, you can use the equity that you have built up in your property/home into cash (home equity loan).

Comparison is Must

If you are thinking on taking a home equity loan of a large amount, so make sure that you compare the rates on several loan types or multiple loan types. A cash-out-refinance can be a better option than a home equity loan, but it depends on how much you require. Besides that, it is important for you to know that, the Tax Cuts and Job Acts, 2017, ‘postponed the deduction for interest paid on home equity loans, and HELOC’s until 2026 – unless they are used to purchase, build or improve the tax-payer/borrowers home that secures the loan, as per the IRS. For instance, interest on a home equity loan, which was used to combine debts or pay for a ward’s college expenses is not tax deductible.

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