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1. Is the interest tax deductible?
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In most cases the interest on a home equity loan or
line of credit of up to $100,000, or the cost basis of your home, is deductible.
Consult your tax advisor about your specific situation.
Calculate your estimated tax savings. |
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2. How much can I borrow?
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Your credit limit is determined by taking a 90% (or 100%
in some cases) of your home's market value, and subtracting your first
mortgage balance.
Calculate how much you can borrow. |
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3. What are the terms?
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Home equity loans offer terms between five and fifteen
years.
Home equity lines of credit have payments that
vary with your balance. You pay as little as two percent of your balance
each month*. For example, if your balance is $10,000 your monthly payment
will only be $200.
*Making only the minimum payments will result
in a balloon payment at maturity. Calculate
your payment. |
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4. Must I occupy the residence I'm using as collateral?
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You do not have to occupy the residence you are using
as collateral. The loan-to-value ratio on a nonowner occupied property
cannot exceed 70%.
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5. Should I use a home equity loan to finance a car?
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You can use a home equity loan for any purpose and enjoy
the benefits of tax deductible interest.*
Evaluate your options. |
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6. What is a home equity loan?
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Homeowners can borrow money using up to 80 percent of
the value of their home as collateral.
“Equity” is the value of a home
minus any liens or mortgages that are secured by the home. For example,
for a $100,000 home with an outstanding mortgage of $30,000, the homeowner
has equity of $70,000. If there were no mortgage or lien, the equity would
be $100,000. |
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7. How much will a home equity loan cost?
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Home
equity loans usually have lower interest rates than other types of consumer
loans, other than first mortgages. The specific rate is determined by competition
among creditors and the borrower’s own credit history. A borrower
cannot be required to pay fees, in addition to interest, in excess of three
percent of the principal amount borrowed. |
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8. Are there different kinds of home equity loans?
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Yes, there are two basic types of home equity
loans: first mortgages and secondary mortgages. A first mortgage is a loan
secured when an individual buys a home, or it can be a refinancing of an
existing mortgage. A secondary mortgage is a loan secured by a homestead
that has at least one other mortgage or lien.
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9. How can I use the money?
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However you choose. There are no legal restrictions;
however lenders may set their own limitations. For example, some lenders
may only offer home improvement loans.
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10. What if I change my mind?
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The law requires a 12-day waiting period after
a consumer submits an application and receives written notice of his or
her consumer rights. This means you have 12 days to change your mind before
the loan is closed. Read the notice carefully — the Texas Constitution
gives you important protections as a home equity loan consumer. No pre-payment
penalties are allowed, and the lender cannot make you use your home as collateral
on any other loan. Both spouses must sign all loan documents. Additionally,
the homeowner or homeowner’s spouse can cancel the contract without
penalty within three days after the closing.
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11. How many home equity loans can I have?
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Only one at a time, and the loan cannot be refinanced
more frequently than once a year.
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