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Home Equity loans..need advice

Discussion in 'The Lounge' started by Chuck P., Aug 24, 2008.

  1. Chuck P.

    Chuck P. Here We Go Steelers

    We're thinking of applying for a home equity loan, mainly to consolidate some bills and do some work around the house.

    Does anyone have any hints/tips on these kind of loans? I've been told by a few people that they are tax deductible but I have no clue if this is true or if there are any other advantages to doing this.

    Thanks in advance for any/all advice.
     
  2. Buick Riviera

    Buick Riviera Willows and bass go together like beer and pizza.

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    Interest paid on Home Equity loans is variable and tax deductible. Typically they are set up as a line of credit on which you simply write checks and the payments vary with the balance due and current interest rate similar to a credit card. They can get you into trouble quick if you aren't disciplined.

    The second type would be a straight 2nd mortgage where you borrow a lump sum at a fixed rate for a defined period of time and pay it back like your 1st mortage. The interest on this is also tax deductible.

    Buick
     

  3. At all costs do not take out a home equity loan....in case it didn't sink in DO NOT GET A HOME EQUITY LOAN!!!!!!!!!!! There are two things in this world I always tell people to protect more than their daughter's virtue - home equity and retirement funds. If you have a cash flow problem get a part-time job for a while or work overtime. I am not going to go into full detail here due to length but financially you are far better off either increasing your income or saving for you improvements or both. Never ever borrow from your home or retirement funds EVER!
     
  4. my family is in the realestate business 97% of the houses on the market have second loans on them , DO WHAT MASTER ANG SAID . NO! NO! NO! your just diging the hole deeper. if your working? the wife is working? and your still short on funds come pay day , ? your living beyond your income stop , regroup, and think this out .
     
  5. We had a basement wall that had been framed and drywalled over. We noticed the outside bowing and removed a piece of the drywal to find that the wall had move din so far that only 4 inches of the block were holding. If we had waited to save the 10,000 dollars to have our basement fixed our house would of fell in.We used most of our savings and took the rest out of our equity. We do however pay double the payback amount and will have it knocked out before it matures.

    I can see the negetive to a home equity loan, but sometimes they are necessary. I would not get one to pay off other bills however. If something would happen to hurt your income, your other bills will only go into default and send you nsaty letters, they will take your home back.
     
  6. there is such a thing as "good debt." a home equity loan is one of them, IF you have good self control and good spending habits. The interest alone will save you thousands over credit card debt, however you must be honest with yourself about how you got the debt in the first place.

    In the market we are in right now if you can secure a second or line of credit the one thing I would tell you is to find an honest appraiser, value of your home is going ot vary depending on location and credit history. Under no circumstances should you ever borrow more than you need and can afford to pay.

    Beyond that advice I would say to just really look at your finacial situation and history to decide if this is a good step for you. As a former loan officer I can tell you that these are not as bad as some would want you to believe just don't exceed 80% of your home value. Also, as a check when your appraisal comes in call a local realtor that has a good reputation and (with out telling them your final plans) let them know you are thinking of selling and would like to get a CMA (competitve market analysis) on your home. This wil tell you if the bank is straight with you on the value adn what they will loan....these numbers are usually different because the bank already has the security and will give you more money. THIS IS HOW PEOPLE GET IN TROUBLE! They simply borrow too much....I know they have 105% loans and why anyone would borrow more than their house is worth is beyond my logic.

    Finally, I would put this out to think about, if you are making repairs to your home not all will increase the value. Structure if needed is a must but making it pretty is something you may want but could actually lower the value.

    Form vs Function

    So the real question is how long do you plan on staying there? Long term? go for it....short term...think about it a little bit more.

    Either way just be responsible with your money - in my opinion, there is nothing wrong with wanting nice things and using your home as equity!
     
  7. Re-read the last line of the previous post a few times and think about it.
     
  8. Please heed reply #3 and #4. Mortgaging your home to buy toys, or "nice things" as it was put, is monumentally irresponsible. Your home, where you keep your wife and kids safe, where you lay your head down at night, is so much more necessary than "paying off some bills" or "buy myself a toy" (boat, sports car, truck, motorcycle, etc).

    think about it, why do you have these bills in the first place? You were living above your means. Whether you had some 'emergencies', or you were temporarily laid off or whatever, you were living above your means. If you correct that, the bills will get paid off without taking out another loan. (yes, you will be paying off unsecured loans with a secured loan. meaning if you screw up/lose job/get hurt, that new "work around the house" will get taken from you, AS WELL AS YOUR HOUSE. Your house is basically the security part of that secured home equity loan.
     
  9. ScottB

    ScottB SW Ohio

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    I would have to disagree, there is no such thing as "Good" debt. True a home equity loan is a better debt than say credit card debt but both are bad. Some debt is almost inevitable (like a house or the basement wall example) but I personally won't go into debt to buy nice things. I will save my money until I can pay cash.
     
  10. Chuck P.

    Chuck P. Here We Go Steelers

    Thanks for all the responses. I guess I'll have to talk with my bank guy and see what all the options are.
     
  11. I can see where people are coming from on warning about home equity loans but I did one on our home a few years back and I still feel it worked out great for us.

    We were looking to add an addition on to our home and did not have the money to pay for it at the time. Nor did we want to wait the 3-4 years to accumulate the money. So we took out the home equity credit line and used it to pay for the addition. We also had a vehicle that we still owed around $10K on and so we just paid it off with the credit line as well. The interest rate between the two was a wash and so I essentially was able to take that $500 or so of interest and use it as a tax deduction. That in itself probably saved $100+ per year on taxes. We still paid aggressively on the credit line to reduce it and then another year or so later the mortgage rates dropped through the floor and so we refinanced at 1.75% lower rate than before and borrowed enough to clear the credit line completely. We would not have been able to do our addition for another few years had it not been for that credit line. And I was not paying any more for that credit line rate than I was paying for my mortgage rate.

    I think where people get in trouble is when they get the credit line and use it aimlessly and max it out, then take the extended time to repay it. So just like all other credit opportunities it can be a double edged sword.
     
  12. there are pros and cons about home credit line loans. If you can pay the debt off in a normal loans time and be able to wright off the interest then it is a good loan to use. If you are buying a car and financiing for 30 years then stick your head in an oven. I have a 2nd to pay for for two educations and one wedding, it saves me a ton but I pay 1K each month. If you are not disiplened in your bill paymentt you cannot do this.