Why Home Equity Loans are popular
Home Equity Loan - An extremely popular and efficient way to borrow is using
roof over one's head as collateral for sizable amounts of credit. To define a few terms, equity is difference between your home's appraised - or fair market - value and your outstanding mortgage balance. A loan refers to amount of money you borrowed from a lender providing you with mortgage. So basically, idea with home equity loans is to borrow against your home's equity as a very effective way to get some things you need at a good price.
Why Home Equity Loans are popular
To be sure, borrowing against value of a home has become increasingly popular. Why, you ask. There are two key reasons for this surge: low interest rates and tax deductibility.
The tax changes that occurred in 1986 have eliminated deductions for most consumer purchases. As a way to get around these changes in tax, consumers began borrowing up on their home value in order to make purchases. Home equity loans thus became a method adopted by homeowners to buy goods and still get a deduction.
For instance, let's say that you bought your home for $95,000 and made a 20 percent down payment of $19,000. To pay remaining $76,000, you then took a first mortgage. On day you closed on your home, you automatically had 20 percent equity. As you pay off principal, you gain equity and your home grows in value.
