After 15 years of working and paying on the mortgage, your home equity is higher than the mortgage balance. Ah, the sweet taste of success and home ownership. However, are you missing out on tax savings, funding strategies, or smart money options? How do you compare your tax savings options to your home equity options?
Home Equity: Your Ace In The Hole
Today, the tax benefits of having a mortgage are greater than the benefits of complete home ownership. Mortgage interest is fully tax deductible, including some of the options that come with home equity lines of credit, second mortgages, or home equity mortgages.
Do you need extra cash to pay off your credit card debt, upgrade or repair your home, or for start-up capital for your own business? Generally, interest on first and second home loans is tax deductible. When borrowing for education related expenditures or for a new business, some or all of the expenses will be deductible. It’s a win-win situation. Ask your accountant if you quality for any of these tax deductions.
How Lenders Determine Home Equity
How’s your home equity established? Well, lenders determine home equity a couple of different ways. On established loans with a local bank, the appraisal may be waived; they’ll use the original established value of the home. On the other hand, if you think your home’s worth quite a bit more than the original appraisal, it’s a good idea to request a new appraisal. Keep in mind, though, that appraisals aren’t cheap.
In general, mortgage companies require a recent appraisal before lending money against your equity. Either way, the equity in your home is based on the current dollar value of your home, less any balances already owed against the property (any first or second mortgages). Remember, lenders only lend a certain percentage of the home’s value.
You can borrow more with 125 Loans, jumbo loans, and interest only loans. However, some of these types of loans are relatively new home equity loans and not loans that I recommend. The homeowner in a dangerous position if the mortgage is called in, the home sells before paying the mortgage down or if a forced sale (foreclosure) should occur.
Your home’s equity is a trump card if you adhere to some common sense rules and continue to stay up on your individual financial needs.
If you’re looking for a lender to discuss your home’s equity, get in touch with me. I know of some in the area you could contact.