EchoBay Expert: What are the most common reasons homeowners apply for home equity mortgages?
Loyal Reader: The term home equity mortgage is a little deceiving…it implies your loan purpose has to involve your home. But it simply means that the debt is secured by your home and there are many reasons homeowners apply for these loans.
One of the most common reasons for tapping into your equity is for debt consolidation. Home equity mortgages for this reason should not be taken lightly. When you take out a loan for debt consolidation, you should have already taken steps to ensure you don't just run up the debt again. Many people who don't have found themselves with a loan that ate up their home equity and a debt ratio that is steadily increasing.
Another common reason is for home improvements. This can be one of the best reasons to use your home's equity. In this situation, you are likely maintaining or even increasing the value of your home and therefore your future equity. Many homeowners have begun to use a home equity mortgage to finance their automobiles.
Because the interest paid on this type of loan is generally tax deductible, it allows you to turn at least a portion of your car into a tax deduction. With education costs increasing every year, parents are struggling to find ways to foot the bill. Once again because of the tax deduction, a home equity mortgage can be a great alternative.
The final common reason for a home equity mortgage is to finance a major purchase. This could be any thing from a motorcycle to a boat to a dream vacation. Whatever your reason may be, be careful when tapping into your home's equity. If for some reason you are unable to make the payments, your home will be at risk.