Owning a home in New York is always exciting. However, if you are in debt, you most likely have problems paying off your mortgage, which can be a huge burden both financially and emotionally. When you are in such a situation, you have options. One of those is taking out a home equity line of credit, also simply known as a HELOC. A home equity line of credit allows you to borrow money against the equity of your home to pay off your debt. This may be the best option you have, so if you choose to get a home equity line of credit in New York, it’s important to know how it works.
A home equity line of credit works much like a credit card. It allows you to borrow an amount of money up to a specific limit. Generally, it is considered revolving debt. For instance, when you have a credit card and you pay off your credit line, you are free to use your credit again whenever you need it. Even though this additional debt can seem like a bad move toward your finances, a home equity line of credit actually offers a number of benefits for homeowners. Here are the benefits of a HELOC.
A HELOC is Tax Deductible
One of the best aspects of a home equity line of credit is that the Internal Revenue Service allows you to claim interest you pay toward it as a deduction on your taxes. Your total debt on the HELOC must be less than $50,000 if you file as a single or $100,000 if you are married and file your taxes jointly with your spouse. No other type of revolving credit allows you to get a tax break on your interest, which makes a home equity line of credit worth it.
You Make Interest Only Payments
In addition to the interest on a home equity line of credit being tax deductible, you may also only be responsible for paying the interest. This is because the majority of lenders don’t require you to pay on the principal every month. It benefits you when you are in debt because you can choose to pay only the interest charges until your financial situation improves. This is an option that you won’t find available through the majority of lenders and is unique to a HELOC.
It’s important to note that home equity lines of credit tend to include higher interest rates than regular mortgage loans. However, at the same time, the interest is still considerably lower than those from credit card companies and lenders who offer short term personal loans. To that end, a home equity line of credit can help you to more quickly pay back your debt and enable you to get back on your feet financially without a struggle. In spite of that, it is still important to remember that your home is collateral for the HELOC, which means if you fail to make your payments, you run the risk of a foreclosure.
You Can Improve Your Credit
After you have been approved for a home equity line of credit in New York and start making payments, it will turn up on your credit report. Payment history with your creditors is the biggest factor in deciding your FICO credit score, which means if your payments are timely and at the appropriate amounts, your credit score will improve.
In the state of New York, you have plenty of options for getting a home equity line of credit. Banks and credit unions such as TD Bank, Third Federal Savings and Loan and Bethpage Federal Credit Union are just three places where you can obtain one. Check out these financial institutions and others in your region for the best rates.