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    OT: Questions about Home Equity Loans

    Could someone fill me in how this works and what the up and down sides are of home equity loans?

    MTIA

    Re: OT: Questions about Home Equity Loans

    Simple. You borrow money using your home as collateral. Interest on the loan is deductible up to $100,000. The loan can be used for anything you like and it would remain deductible. Unfortunately, there is a caveat to the deductibility. If you are subject to AMT (next year $67,000 income) you may loss the deductiblity. Congress is working on reducing the impact of the AMT on the middle class. Whether it passes is very questionable.

    Re: OT: Questions about Home Equity Loans

    Another downside is that it the rate is not fixed. It is tied up to the prime rate. Right now the prime rate keeps moving up.

    Another thing. If you have an equity line of $100,000 and you only use $50,000, you only pay interest on the $50,000. Works just like a credit card. Hope this helps.

    "Home equity line of credit
    If you need to borrow money to pay off debts or make a major purchase, a home equity line of credit (HELOC) can be useful. A HELOC is a form of revolving credit secured by the equity in your home. This is an open ended loan that can be paid down or charged up for the term of the loan, much like a credit card. The interest rate fluctuates (typically monthly).

    With a HELOC, your lender will approve you for a specific amount of credit - the maximum amount you may borrow at any one time under the plan. In determining your credit limit, your income, debts, credit history and other financial obligations will be reviewed. An appraisal will be required on your home to determine the home's market value. Your credit limit will be based on a percentage of your home's appraised value, which is then subtracted from the balance owed on your existing mortgage.

    When you take out a HELOC, you pay for many of the same expenses as when you financed your original mortgage, such as an application fee, title search, appraisal, attorneys' fees, and points (a percentage of the amount you borrow).

    Most HELOCs have a fixed period (5, 10, even 20 years) during which you can borrow money. Typically, you will use special checks or a credit card to draw on your line. You will be required to make a minimum payment each month - usually the interest that accrued during the draw period. However, the interest you pay is usually tax deductible. At the end of your "draw period," you will be required to pay off the loan, making monthly payments on the principal and interest."

    Re: OT: Questions about Home Equity Loans

    Quote:
    Le Chef said:
    Could someone fill me in how this works and what the up and down sides are of home equity loans?

    MTIA



    If you need cash out, couldn't you just refinance your home, if you already have equity in your home? Seems like an easier solution.

    Re: OT: Questions about Home Equity Loans

    Another point that may or may not apply to you. There are transaction costs with a home equity loan--surveys, deed prep and closing costs. Don't know if you're trying to use one to buy a new car, but factor in the cost of paying (or financing) the cost of an updated survey as needed (depends on individual lenders and your exact situation), closing costs and compute the net difference in rates after factoring in the mortgage interest deduction. It may not be the lowest cost of funds. It wasn't when I looked into a Heloc or traditional first mortgage (as my home is paid for) last fall.

    YMMV, however, as we (in Texas) don't get favorable home equity rates, compared to what you may find in other states.

    Home Equity Loans

    i wouldnt take money out of an appreciating asset like you home to purchase a depreciating asset like a car.

    Re: Home Equity Loans

    I have a $200,000 limit on my Home Equity Line loan. With interest rates continually rising, I'm very glad I paid cash in Nov. for my P-car. A Home Equity Line can come in very handy and if there's bank competition where you live, often times the bank pays ALL associated costs (mentioned in above posts) with securing the line of credit (closing, survey, etc.). Warning: they (your line of credit) can be very seductive so be careful.

    Re: Home Equity Loans

    You should be able to borrow money for a new car for 6%, less if you belong to a credit union. As icon said, no way would I pull cash out of my house to buy a depreciating asset! Heck, even a jumbo CD pays 4.75% now, so is 6% that bad a rate?

    Re: Home Equity Loans

    IMO a home equity line of credit is a great way to go providing you can pay it back. Most people get caught and don't.

    Thanks to all

    My gut told me that a Home Equity Loan was not a smart way to go, despite being told by a couple of "experts" that it was the smart thing to do.

    Will stick to the old fashioned way of paying for the new car.

    Re: Thanks to all

    Not to beat a dead horse, but assuming you are planning on paying the loan back, the tax advantages of the home equity loan are significant. For example, assuming the rate on you car loan and home equity loan are the same, then a car loan effictively cost you more by an amount equal to your marginal tax rate times your annual interest cost. Also, using a home equity loan does not reduce your potential profit on your home, as you still own all the upside (and downside), you just have to pay the loan back. The cash versus loan analysis requires a review of your opportunity cost on your money if you pay cash versus after tax cost of the loan. If you are going to earn less on the money after tax than the interest cost of the loan after tax, then you should pay cash. Of course this assumes that you can fairly estimate your marginal after tax return and the rate on your loan, which in the case of a home equity loan will be variable. If you parse all the numbers, it is probably best to pay cash, second home equity and third auto loan

    Sailor - what's that mean in English?

    This kind of stuff makes me want to go into a dark room and lie down for a while...

    Re: Sailor - what's that mean in English?

    My Choice's ,,

    1, Use your monoply money ,, for people with a high fruitful cash flow business's that would find monthly payments a drop in the ocean thus making there lump of money work for them..

    2, Outright cash purchase...

    throt..

    Re: Thanks to all

    Best thing to do is meet with a financial advisor and/or accountant to find out what's best for your individual situation. It'll be money well spent..

    Re: Thanks to all

    "This kind of stuff makes me want to go into a dark room and lie down for a while..."
    Good thinking Le Chef.
    If you can't afford it, don't buy it, is the kindest advice you'll ever receive!

    Re: Thanks to all

    If you're going to finance the purchase, why not do so through a HELOC - you'll get a good interest rate and there might be a tax deduction (for you lucky Americans).

    If the choice is to finance or buy outright - I'd buy outright.

    There seem to be responses here, but I think the ultimate question isn't totally clear (and maybe it was supposed to be that way.

    -B

    The issue

    Whether it's cheaper to borrow from your home equity (variable interest rates being an issue plus associated costs) or just go for a straight auto loan.

    Re: The issue

    Gotcha.

    Well, don't auto loans also vary with prime? Can you "lock in" your auto loan rate? If so, you'll pay for that, and what it boils down to is whether you think interest rates are going to go up or down . . .

    If the plan is to finance, then the HELOC seems like a good way to go to me for reasons already listed.

    Re: Thanks to all

    Quote:
    Le Chef said:
    Will stick to the old fashioned way of paying for the new car.


    the "old fashioned way" is to put the purchase off, save the money, and pay cash. (providing you don't already have the cash)

    f advisors

    Quote:
    JMShrink said:
    Best thing to do is meet with a financial advisor and/or accountant to find out what's best for your individual situation. It'll be money well spent..


    provided the financial advisor and/or accountant knew what they were talking about. i know a bunch of "financial advisors" i wouldnt let near my money. if you were going to use one be sure and check them out. just having the title doesnt make them experts.

    Re: f advisors

    Quote:
    icon said:
    Quote:
    JMShrink said:
    Best thing to do is meet with a financial advisor and/or accountant to find out what's best for your individual situation. It'll be money well spent..


    provided the financial advisor and/or accountant knew what they were talking about. i know a bunch of "financial advisors" i wouldnt let near my money. if you were going to use one be sure and check them out. just having the title doesnt make them experts.


    Somebody "qualified" goes without saying..

    Re: f advisors

    Quote:
    JMShrink said:
    Somebody "qualified" goes without saying..


    then why did you say it?

    Re: f advisors

    Quote:
    icon said:
    Quote:
    JMShrink said:
    Somebody "qualified" goes without saying..


    then why did you say it?


    Because of your post..

    HELOC Loans

    Here on the Left Coast, a home loan will run cost of 1-1/2 to 2% of the loan amount, and there will be a prepayment penalty for at least a couple of years. HELOCS are available via the internet for no loan costs. As I expect to pay off the loan in lumps over 2-3 years, including from the sale of the 993 at some point, the HELOC made more sense. For someone who anticipates making just monthly payments to pay off the loan, a fixed rate auto loan probably makes more sense. I wouldn't put a 15 or 30 year loan balance on my house to buy a car - think of the total interest costs, even if tax deductible.

     
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