|Mortgage Refinance Information|
Home Equity Loan Tax Deductions
Interest - is an amount you pay for the use of borrowed money.
Several lenders are currenty offering amazing deals for 125% home equity loans. As highly advertized as these loans are they don't highly advertize that the interest payments on these loans are not neccessarily fully tax deductable.
To understand why these interest payments don't qualify as tax deductable lets look at what is considered a tax deductable interest payment. The IRS website states that to be considered for full tax deductable interest your mortgage must fall into one of these three catagories:
As described by the IRS to be considered as home equity debt the amount of the loan must be equal or less then the Fair Market Value of your home minus any outstanding debt from your first or second mortgage up to a loan amount of $100,000.
For example, your home's fair market value is $150,000 your outstanding debt or mortgage is $115,000. This means the equity that you have built from your home is $35,000.
Now your looking to cash in and a lender offers you a 125% home equity loan, 125% x $150,000 = $187,500 subtract your outstanding debt of $115,000 and you have qualified for a $62,500 dollar loan. So finally lets divide this loan into two parts.
First $35,000 is your secured home equity debt and $27,500 is your unsecured home equity debt. The problem lies that as discussed before the tax exemption for interest payments only covers the secured home equity debt amount, leaving you with the financial liability of paying off the interst on $27,500 of your loan.
*Their is a notable exception in regards to the purpose of the home equity loan. If the loan is used for home improvement it can possibly be considered as a "home aquisition debt" and the interest payments may be deductable for a loan greater then your actual equity value.
The best course of action is to always speak to a tax advisor regarding any type of home loan. Being aware of tax deductions and liabilities can save you a huge headache and possibly thousands of dollars!
Richard Mccaffery is owner of Home Equity Loan Lenders, a free content website meant to assist consumers in finding home equity loan information.
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Texas was one of the last states to allow homeowners to take out home equity loans. Laws going back to the nineteenth century strictly prohibited home equity lending, as legislators feared that unscrupulous lenders would take advantage of homeowners for the purpose of seizing their homes through foreclosure. This made it impossible for citizens of the Lone Star State to use their equity for home improvements, debt consolidation or paying medical bills, as homeowners in other states may do.
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Reverse mortgages used to be considered the last resort of desperate retirees who needed to borrow against their home equity in order to pay for medical expenses. With home prices across the country rising at astonishing rates, more and more retirees, aged 62 and over, are taking out reverse mortgages to fund better retirement living. A reverse mortgage works more or less the opposite way from a conventional mortgage; the borrower receives payments from the lender in the form of a lump sum, a line of credit, or monthly payments. The amount borrowed constitutes a lien against the home must be repaid upon the death of the borrower, or when the home is resold. There are costs associated with a reverse mortgage, however, and potential borrowers should be aware of these when considering taking out such a loan, particularly if the borrower takes out a line of credit.All loans have fees associated with them. There are home appraisals, paperwork fees, mortgage insurance fees, and additional "points" added to the cost of the loan. In general, the costs of taking out a reverse mortgage are higher than those associated with a traditional mortgage. There are several reasons for this, including the fact that the time period for receiving repayment of the loan is indefinite, typically depending on how long the borrower lives. This uncertainty is added into the loan in the form of additional fees.Most people who take out a reverse mortgage opt to take their funds in the form of a line of credit, rather than a lump sum or monthly payments. There are advantages to a line of credit, which allows the borrower to use the funds by simply writing checks against the loan. The primary advantage is that the borrower only uses the funds when he or she needs them. Because of this, interest only accrues on the money if the borrower actually writes checks. Borrowers should be aware, however, that the costs of the loan, which can be substantial, apply even if the borrower doesn't write any checks against the loan. If the homeowner takes out a line of credit and decides to sell the home shortly thereafter without ever having written a check against the loan, the borrower will not owe the lender any interest or principal, but the borrower will lose the money paid for the cost of the loan, which is not refundable. If the borrower rolled the costs into the loan itself, they could owe payments even if they never wrote a check.In short, borrowers considering taking out a reverse mortgage should make sure that they plan to stay in their home for quite some time and that they actually need the money from such a loan. A reverse mortgage is a great idea for those who have a specific purpose or use in mind, but as an emergency source of "rainy day" funds, it can be an expensive choice.
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Refinancing your home mortgage can come with some great perks. If you do it with no money out of pocket, you can skip one to three mortgage payments. You can save money on your payment or pay off your entire mortgage faster when you have better terms. Here are a few things to pay attention to when you refinance your mortgage loan, to make sure that you don't overlook anything that you might regret, or that can cause you problems later:
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