should you want to relocate you might end up losing money on the sale of the home or be unable to move and if you re getting the loan to pay off credit card debt resist the temptation to run up those credit card bills again before doing something that puts your house in jeopardy weigh all of your options 
 marguerita cheng certified financial planner blue ocean global wealthspecial considerationshome equity loans exploded in popularity after the tax reform act of 1986 because they provided a way for consumers to get around one of its main provisions the elimination of deductions for the interest on most consumer purchases the act left in place one big exception interest in the service of residence based debt 1however the tax cuts and jobs act of 2017 suspended the deduction for interest paid on home equity loans and helocs until 2026 unless according to the internal revenue service irs they are used to buy build or substantially improve the taxpayer s home that secures the loan for example the interest on a home equity loan used to consolidate debts or pay for a child s college expenses is not tax deductible 2as with a mortgage you can ask for a good faith estimate but before you do make your own honest estimate of your finances you should have a good sense of where your credit and home value are before applying in order to save money says casey fleming branch manager at fairway independent mortgage corp and author of the loan guide how to get the best possible mortgage especially on the appraisal of your home which is a major expense if your appraisal comes in too low to support the loan the money is already spent and there are no refunds for not qualifying before signing especially if you re using the home equity loan for debt consolidation run the numbers with your bank and make sure that the loan s monthly payments will indeed be lower than the combined payments of all your current obligations even though home equity loans have lower interest rates your term on the new loan could be longer than that of your existing debts the interest on a home equity loan is only tax deductible if the loan is used to buy build or substantially improve the home that secures the loan 2home equity loans vs helocshome equity loans provide a single lump sum payment to the borrower which is repaid over a set period of time generally five to 15 years at an agreed upon interest rate the payment and interest rate remain the same over the lifetime of the loan the loan must be repaid in full if the home on which it is based is sold a heloc is a revolving line of credit much like a credit card that you can draw on as needed pay back and then draw on again for a term determined by the lender the draw period five to 10 years is followed by a repayment period when draws are no longer allowed 10 to 20 years helocs typically have a variable interest rate but some lenders offer heloc fixed rate options advantages and disadvantages of a home equity loanthere are a number of key benefits to home equity loans including cost but there are also drawbacks home equity loans provide an easy source of cash and can be valuable tools for responsible borrowers if you have a steady reliable source of income and know that you will be able to repay the loan then low interest rates and possible tax deductions make home equity loans a sensible choice obtaining a home equity loan is quite simple for many consumers because it is a secured debt the lender runs a credit check and orders an appraisal of your home to determine your creditworthiness and the cltv the interest rate on a home equity loan although higher than that of a first mortgage is much lower than that of credit cards and other consumer loans that helps explain why a primary reason that consumers borrow against the value of their homes via a fixed rate home equity loan is to pay off credit card balances home equity loans are generally a good choice if you know exactly how much you need to borrow and for what you re guaranteed a certain amount which you receive in full at closing home equity loans are generally preferred for larger more expensive goals such as remodeling paying for higher education or even debt consolidation because the funds are received in one lump sum says richard airey senior loan officer with integrity mortgage llc in portland maine the main problem with home equity loans is that they can seem an all too easy solution for a borrower who may have fallen into a perpetual cycle of spending borrowing spending and sinking deeper into debt unfortunately this scenario is so common that lenders have a term for it reloading which is basically the habit of taking out a loan to pay off existing debt and free up additional credit which the borrower then uses to make additional purchases reloading leads to a spiraling cycle of debt that often convinces borrowers to turn to home equity loans offering an amount worth 125 of the equity in the borrower s house this type of loan often comes with higher fees because the borrower has taken out more money than the house is worth the loan is not fully secured by collateral also know that the interest paid on the portion of the loan that is above the value of the home is never tax deductible 3