Home Equity Second Mortgages: Your Ace In
The Hole
Almost 15 years ago, you bought
your first home. You ve been diligent in working and paying on the mortgage,
and finally have more equity than mortgage. Ah, the sweet smell of victory,
and home ownership. But are you playing the financial investment game as
well as you think? Are you missing out on tax savings, funding strategies,
or just plain smart money options? How do you check your equity options
versus your tax savings options, to comparative shop and make use of your
smart options?
Today, the tax benefits of
retaining a mortgage on your home far outweigh the benefits derived from
complete home ownership. Mortgage interest is fully tax deductible, and
so are some of the options that come with equity lines of credit, second
mortgages, or equity mortgages.
Borrowing against the equity
in your home in order to pay off credit card debt, fund college educations,
fund additions or needed repairs to the home, or to provide startup capital
for that dream of owning your own business, is a tax advantage. Interest
on first and second mortgages in general is fully tax deductible, and if
you re borrowing to fund education related expenses, or start that new
business, some or all of those expenses are going to be deductible. It
s a win-win situation.
How is the dollar value you
have in your home established? Well, there a couple of different ways that
lending institutions determine home equity. If you re dealing with a local
bank that has held your mortgage since inception, many will not require
an appraisal of the home, they will simply use the original established
value of the home. Now, if you believe your home to be worth quite a bit
more than the original appraisal value, you might want to request a new
appraisal, but appraisals aren t cheap.
In general mortgage companies
will always require a recent appraisal before lending money against residential
property. Either way, the equity in your home is established based on the
current dollar value of your home, less any monies already owed against
the property (that would be your first mortgage). There is an additional
piece of information worth noting here. Usually, a lending institution
will only lend a certain percentage of the homes value. With the creation
of 125 loans, or loans where up to 125 percent of the value of the home
is loaned, you may be able to borrow up to that amount, even with a second
mortgage. 125 Loans, jumbo loans, and interest only loans are a relatively
new market for home mortgages, and not loans that I would recommend, simply
because they put the homeowner in a precarious position if the mortgage
should be called in, if the home should sell prior to paying the mortgage
down, or if a forced sale should occur.
Your home s equity is a trump
card, if you will adhere to some common sense rules and continue to stay
abreast of your individual financial needs.
Author-Bio: Financial specialist
John Franz
Second
Mortgages
|
Business
Loans for Women
|
