With the increase in the debt obligations in the nation, there is an increasingly large number of people who are desperately looking for ways to make ends meet. Due to the lack of people who can don a stellar credit rating, the chances of grabbing unsecured loans at high interest rates are gradually becoming fainter. But does that mean that it is impossible for all those debtors with a tarnished credit score to get a consolidation loan? Certainly not! If you’re someone who owns a home and has accumulated enough equity in your home, you needn’t worry as you can tap the equity in your home and take out a secured debt consolidation loan through which you can easily combine your debts into single monthly payment. Check out the concerns of this article to know more on home equity loans.
What are home equity loans or lines of credit?
If you’re not aware of the meaning of the word “equity”, you should know that it is the difference between the value of the property and the amount that you owe your home mortgage lender. Both home equity loans and home equity lines of credit allows you to borrow a lump sum amount against the equity that you’ve accumulated in your home to make some kind of discretionary purchases and even to repay debt. While incurring additional debt, you need not worry as you have the option of taking out a home equity loan.
Using a home equity loan to combine your unsecured credit card debts
Although home equity loans carry typically high interest rates than the first mortgage loans, they undoubtedly carry lower rates than the unsecured lines of credit. If you wish to combine your unsecured debts through a secured home equity loan, here are the benefits that you should consider.
- The interest rates help you save money: When you’re already drowning in unsecured credit card debt, you must be looking for ways in which you can repay debt and also save your dollars. The home equity loan carries interest rates that are way lower than what you would have to pay on an unsecured loan and therefore this process of merging your debts will offer you a win-win situation.
- The repayment term is long enough: As the home equity loan is a secured loan and involves a huge amount, the repayment term is usually longer. With a longer repayment term, the monthly payments become manageable as you can spread your payments throughout a longer period of time.
- The tax breaks: Is a home equity loan tax deductible? Well, the answer is Yes. In fact the biggest benefit of merging your unsecured debts through a home equity loan is that you get tax breaks. The interest rate that you pay on the home equity loan are tax-deductible and hence you can get tax benefits through this option.
A deeper view into the tax-saving feature of a home equity loan
A nice feature about home equity loans mentioned above is that the homeowners can get a tax deduction for the interest rates that they pay on the mortgage. The taxpayers are supposed to claim a deduction on the interest rate paid on a loan that has been secured by their first or second home. Although most of the home equity loans fall into this same category, the borrowers might get confused when they have more than one “Second homes” in excess of the value of the home.
So, this goes without saying that the advantage of using a home equity loan is that you simply save your dollars. If you use your HEL for a debt consolidation program and your interest rates become tax-deductible, isn’t that a huge savings? If you’re going through such a situation, get in touch with your lender and get a home equity loan to avail the above mentioned benefits.