Question:

What is a homeowner's equity account?

Answer:

A Homeowner's Equity Account is actually a revolving credit account with a lender, bank, credit union, or a similar financial institution that uses your home as collateral. The consumer is allowed to access from 80% to 125% of their home equity, minus any existing liens on the home - commonly a first mortgage.

A homeowner's equity account places a lien on your home immediately and can be accessed through a check or credit card. The lien will be removed when the loan is repaid.

125% homeowner's equity accounts can be risky.

If real estate is appreciating in value, a 125% homeowner's equity account can be worth considering. However, when home values in your area are going down, or if you default, it may be difficult to come up with 25% over your home's value.

Usually, homeowner's equity accounts carry lower starting rate but then they adjust, no later than a year and the rate will be usually tied to the prime rate and the margin is usually up to 3%.

Interest on your credit line is fully tax deductible for amounts up to $100,000. For larger loans, interest will be fully tax-deductible only in some occasions. Consumers are advised to seek professional tax specialist help to maximize their homeowner's equity account tax deduction benefits.

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