HOME EQUITY LOANS & DEDUCTIBLE INTEREST
I’ll start with a brief definition from Wikipedia: “A home equity loan (sometimes abbreviated HEL) is a type of loan in which the borrower uses the equity in their home as collateral. These loans are useful to finance major expenses such as home repairs, medical bills or college education. A home equity loan creates a lien against the borrower’s house, and reduces actual home equity.” Source URL: http://en.wikipedia.org/wiki/Home_equity_loan
The organization USAA has some information about Home Equity Loans:
- Home equity basics.The term home equity sounds a little complex, but it’s simply the difference between your home’s market value and what you still owe on it. For example, a home that’s worth $200,000 and has a $150,000 mortgage balance has $50,000 in equity.The double-digit declines in real estate values in some parts of the country have erased equity and made home equity loans tougher to come by. If you’re a homeowner with a solid credit history and home equity, you may be able to use this equity as collateral to borrow money with two key benefits:
- Low rates. Home equity rates are usually much lower than what you’d pay for a credit card or other loans that don’t require collateral.
- Tax breaks. Getting money back from Uncle Sam when you file your taxes lowers your bottom-line borrowing cost even more — generally speaking, you can deduct interest on up to $100,000 of home equity debt ($50,000 for married couples filing separate returns).
- Loans and lines.There are two ways to borrow against your equity:
- Home equity loans immediately advance you a single sum of money and usually require payments over a fixed period at a fixed interest rate.
- Home equity lines of credit give you the option of borrowing money as you need it, up to the amount your lender approves you for. Rates are variable, so your payments will fluctuate with changes in interest rates and will vary as your balance changes.
You can read the full USAA article here: https://www.usaa.com/inet/pages/advice_equity_loans_2009
Next I’ll include some information from the IRS about Home Equity Loans and tax deductible interest from Publication 936 for which a link is included below:
“Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan.
- You file Form 1040 and itemize deductions on Schedule A (Form 1040).
- The mortgage is a secured debt on a qualified home in which you have an ownership interest. “Secured debt” and “qualified home” are explained later.”
RENTAL PROPERTY AND DEDUCTIONS
If you receive rental income from renting a dwelling unit, such as a house or an apartment, you may deduct certain expenses. These expenses, which may include interest, taxes, casualty losses, maintenance, utilities, insurance, and depreciation, will reduce the amount of rental income that is taxed.”
FEDERAL RESOURCES: HUD / FHA
The federal Housing and Urban Development (HUD) administration site also has resources for homeowners about improvements: http://portal.hud.gov/hudportal/HUD?src=/topics/home_improvements and http://www.hud.gov/offices/hsg/sfh/title/title-i.cfm
Finally, I’ll include a description and link to the HUD Emergency Homeowner Loan Program: “The EHLP is designed to provide mortgage payment relief to eligible homeowners experiencing a drop in income of at least 15% directly resulting from involuntary unemployment or underemployment due to adverse economic conditions and/or a medical emergency.” For details click on the following link: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hcc/ehlp/ehlphome
CALIFORNIA and LOS ANGELES Resources
The State of California and County of Los Angeles also have information on home loans which can be found at:
California State – http://www.calhfa.ca.gov/
Los Angeles County – http://dca.lacounty.gov/mnHomes.html
COMMERCIAL SITES – HOME LOANS
There are a multitude of sources for Home Equity Loans – among them are internet only lending sites, national and local banks, credit unions and other “Members Only” financial organizations. While I cannot vouch for the reliability of any of the home improvement and home equity loan websites I am linking below, you may find at least one of them helpful (I hope!):