Equity Loan Rates: Why They Are Popular

2007-03-08 10:33:40

( Financial )



It is now common for a homeowner to take out a home equity loan or lines of credit. These types of loans are becoming popular because of the competitively low interest rates and tax deductibility.

Home equity loan rates are typically lower than credit cards or even automobile loans. However, equity loan rates are also a little higher than a primary mortgage. Home equity loans and lines of credit are considered secure by all banks and lending institutions, because you are using your home as collateral.

Another reason why home equity loans and lines or credit are popular is because they are still tax deductible. Most interests in consumer debt like automobile loans a couple of decades ago were tax deductible. However, when the government’s debt increased, tax deduction for consumer debts was removed. This was done to prevent increases in income tax rates. Removal of tax deduction was done for every type of loan except for mortgage debts.

Home equity and lines of credit is not the only way to get cash out of your property. If you do not want to take advantage of decreasing home equity loan rates, you can opt for cash-out refinancing instead. Cash out refinancing is applicable for homeowners whose mortgage rates have dropped while the value of their property has risen. You can refinance your first mortgage for more than your outstanding balance.

When you are applying for home equity or lines of credit, banks and lending institutions evaluate your eligibility. They check your identifying information such as your address and your social security number. They check your credit history and they also check public records for bankruptcies and foreclosures. Be prepared to provide the lender with proof of income information and make sure the information presented in your credit report is accurate.


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