Boston Bankruptcy Attorney

Benefits of Home Equity Loans

Home equity loans exploded in popularity during the mid 1990s when the tax laws changed and eliminated deductions for interest on most consumer purchases. These loans allowed taxpayers to sort of circumvent these changes by taking out a loan that they were permitted to deduct the interest on for tax purposes.

Home equity loans, or second mortgages, allow homeowners to borrow money against the value, or equity, of their home. With a home equity loan, a homeowner can borrow up to $100,000 against the value of his or her home and then later deduct the interest on the loan.

Like any sort of financial move, there are distinct benefits to a home equity loan. The first is that it provides an easy source of cash. A person can choose to take out a home equity loan to pay off credit cards, re-do the kitchen, or add on an entire addition to the house. The home equity loan lets the homeowner do this with relative ease since the home’s value is serving as collateral on the loan.

Another huge benefit is that the interest rates of home equity loans are much lower than the loan rates on credit cards and other available forms of consumer loans. The interest rate is higher than that of a first mortgage but still, overall, a relatively low interest rate for such a large amount of cash.

Because of the low interest rates and the availability of these loans, the top reason for a person to borrow against the value of his or her home was to pay off credit card bills. This was the most popular option as it allows a consumer to pay off a high interest rate debt, consolidate payments, lower the interest rate paid on the originally owed money, and receive some tax benefits.

The tax benefits, according to bankrate.com, are that a person can deduct the interest paid on a home equity loan. The same cannot be said for credit card debts and payments.

Contact a Boston Bankruptcy Lawyer

If you borrowed against the value of your home and then saw its value plummet and are now worried about foreclosure, contact the Boston bankruptcy attorney of Joshua Spirn & Associates at 1-800-975-5346 to discuss your bankruptcy options and to determine which form of bankruptcy is best for you.