Taxes have become more bothersome now than ever. The Tax Reform Act in 1986 made it more difficult for taxpayers to reduce their taxes. What challenged taxpayers the most was the fact that interest charged for consumer debt was no longer deductible. Prior to this, many Americans relied on interest deductions for financial support. To reduce the effect of the new tax reform legislation, many homeowners began to take advantage of home equity lines of credit in late 1996.
Defining Home Equity
Home equity refers to refers to the current value for your home less any outstanding mortgage payments. In most cases, home equity is the largest monetary source for real estate investors. Your home equity can build up over time as you pay off the mortgage on your home and its value appreciates. If you decide to sell your home, you are required to repay the full amount of the loan. Payment periods typically range between 5 to 10 years.
For Example
Let us say your current home is valued at $400,000. If you made a down payment of 30% and have a loan on the remainder, the current equity in your home would be 30% of the value of your property. Therefore if the property is worth $400,000 and you contributed $120,000 (30%) you have $120,000 in equity.
A home equity loan allows you to leverage the accumulated equity on your home to borrow money. Homeowners who meet the requirements can receive a loan of up to $100,000 and all interests are deductible at the end of the tax-filing period.
Types of Home Equity Loans
There are two types of home equity loans: lines of credit and fixed rate loans. A homeowner may decide which loan is best for him/her based on a number of reasons. A home equity fixed-rate loan is paid out in a lump sum amount to the homeowner who then repays the loan at the agreed interest rate over a specific period. The interest rate on the loan remains fixed during the loan term.
On the other hand, a credit card often accompanies a line of credit loan and the interest rate may change over time. Each borrower can use the card to withdraw funds based on his or her individual spending limit. The payment method may vary based on the size of the loan and the current interest rate. Arizona has a full range of line of credit lenders that can help you to finance your future investment. Review the table below, for a list of potential lender near you.
Some Line of Credit Lenders in Arizona
|
Loan Provider |
Interest Rate |
Monthly Repayment |
|
National Bank of Arizona |
4.240 |
$254.68 |
|
Bank of Arizona |
4.250 |
$309.62 |
|
Wells Fargo |
5.000 |
$268.41 |
|
Bank of The West |
5.000 |
$268.41 |
|
Harris Bank |
4.490 |
$253.05 |
Utilizing Home Equity Loans to Build Wealth through Real Estate Investment
The equity in your home forms a big part of your total net worth. Aside from tax advantages, your home equity can come in handy if you decide to invest in real estate for rent or other purposes. Residential investment is a great way to generate financial growth and security.
Nonetheless, before you proceed, decide if shifting your debts will be advantageous to your investment portfolio. Your best option is to seek professional advice to ensure that you are making the right decision.
