Deborah Acosta
speaker
109 appearances
2 recordings
1 series
first heard May 2021
last heard Jun 2021
Deborah Acosta’s voice in public audio — every appearance, attributed to the second.
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Appearances
So a lot of people can use it for home improvements, but there usually aren't any restrictions.
So it doesn't mean that you have to use it for home improvement.
However, if you do go down that road, you can run the risk of having to pay some taxes on that money, depending on your particular tax situation.
You also have to see how this will affect your monthly mortgage payment.
Even though your mortgage rate will come down lower, because you're paying a mortgage on a home that's valued much higher, it may go up substantially.
And that could really start to squeeze some people.
A home equity line of credit or HELOC, as it's popularly known, has a variable interest rate attached to it and it works more like a credit card.
So instead of getting the money all at once in the way that you would with a cash out refi, you open up a line of credit against your house instead with a certain limit and then you take what you need when you need it.
The interest rate on a HELOC right now is around 4% and it's variable.
So number one, what are you gonna use this money for?
Once you know what that is, then you can make other decisions about how to do this.
If you use that money to improve your home and you make sure the improvements add substantial value, then you'll still be eligible for the mortgage interest deduction in your taxes.
If you use the money for something else,
may not be deductible.
So keep that in mind and talk to your financial advisor to make sure that this makes sense for you.
Another reason why people do these home equity loans is to pay off another higher interest debt that they already have.
So let's say you have an existing mortgage on your home that has a much higher interest rate than the low ones that we have now.
Some people do
do their cash out refi to lower their interest on their home and then use that cash to pay off let's say a credit card that might have a much higher interest rate attached to it or maybe it's a student loan that has a very high interest rate attached to it so you know using the money from your home lowering your interest rate and using that money to pay off a higher interest debt could result in savings for you even if it doesn't get the tax benefit of fixing up your home let's say
Another reason people might do it is to start a business, which, okay, is not eligible for the mortgage interest deduction, but it could be eligible for other tax breaks.
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