If you’re at all interested in using your home’s equity to access cash, then let us compare it to you.
There are two common ways to get cash from your home—a Home Equity Line of Credit (HELOC) or a cash-out refinance.
In the current environment, many people want to keep the great interest rate they already have on their home loan, so they automatically choose a HELOC over a refinance. But wait—there’s a big difference that can make the benefits hard to compare at a glance. HELOCs have adjustable interest rates, whereas most home loans are fixed.
If you’re interested in exploring your options more or you have questions about home financing, please reach out. I’ll be happy to help.
Let’s talk about another common purpose for HELOCs—consolidating debts. A cash-out refi is also often used for this purpose.
With the HELOC, you add an additional loan to your current mortgage. With the cash-out refi, you will still have only one loan. Depending on how much you owe on your current loan and how much cash you borrow against your home’s equity, the total amount may be more or less than what you currently owe.
Even in times when mortgage rates are not at their lowest, home loans can still be an amazing bargain compared to consumer and installment rates. A HELOC or cash-out refi can help you pay off debts faster and reduce both the the total interest and total amount of cash out of pocket you spend each month.
Consolidating multiple debts into a HELOC or one home loan is not for everyone. For instance, using your equity to have the equivalent of a 30-year car loan is rarely a great idea. But it may work if you have the discipline to take advantage of a low rate to speed up—rather than slow down—payment terms. In other words, use the low rate of a HELOC but pay the amount used for the car back in the same 4 years or so that you would have with a typical auto loan.
Consolidation can make debts disappear with less total interest expense than they would otherwise.
Want to explore what a good consolidation plan could mean for you? Reach out, and we'll be happy to help!
As we’ve been talking about HELOCs and other home financing options, I’ve mentioned that the interest you pay may be tax deductible. Here is some general information about potential tax deductions, but of course you’ll still want to talk with your tax pro.
Whether or not you can claim interest expense on your home loan will depend on how you use the money and how much you borrow. Let’s take a look.
What can you claim?
To be eligible for an interest deduction, the proceeds of your home loan must be used to construct, purchase or substantially improve a qualified residence. This is considered “acquisition debt.”
Borrowers often use home equity lines of credit (HELOCs) to finance expenses unrelated to their homes, such as vacations or college educations. HELOCs are still available for these types of expenditures, yet some of the tax advantages have been removed.
How much can you claim?
You can claim interest expenses on acquisition debt of up to $750,000 for a home financed after December 15, 2017. This means if you itemize expenses on your taxes, you can deduct the interest expense you pay on up to $750,000 of home-related loans. If you have more than one loan—a primary mortgage and a qualified HELOC, for example—you can deduct interest expense on up to $750,000 of the combined loan amounts.
Borrowers can deduct interest expense on up to $1 million of acquisition debt incurred on or before December 15, 2017. When debt is refinanced, it is treated as having been incurred on the original date, and interest paid on up to $1 million of the refinanced loan may still be deducted.
Is a HELOC still right for you? If you’d like to talk about it, please reach out when you’re ready.
We may not be comparing real apples and oranges, but we’re coming pretty close in the home financing industry.
And if you’re at all interested in using your home’s equity to access cash, then this comparison is for you.
There are two common ways to get cash from your home—a Home Equity Line of Credit (HELOC) or a cash out refinance.In the current environment, many people want to keep the great interest rate they already have on their home loan, so they automatically choose a HELOC over a refinance. But wait—there’s a big difference that can make the benefits hard to compare at a glance. HELOCs have adjustable interest rates, whereas most home loans are fixed.
Try it out. And if you’re interested in exploring your options more, please let me know. I’ll be happy to help.
Today’s rates
New Home Purchase
Conforming Interest rate
30-yr fixed 3.250%
Rates are not static, they often change throughout the day.
If another lender offers a lower rate, there's a buy-down involved.
Often not mentioned when quoting the lower rate
Actual rates vary based on Loan Amount, Middle Credit Score, DTI, Term
Today’s rates based on a purchase 760 middle score, conforming loan, detached, primary residence, non-self-employed, detached, primary home
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