Home Equity Loan Pitfalls

The home equity loan came of age in 1996 when changes in the tax law eliminated deductions for the interest on most consumer purchases. Interest paid on home equity loans, however, remained exempt, up to $100,000 for taxpayers filing jointly. The two main types of home equity loans are fixed-rate loans and variable-rate lines of credit (called HELOCs). The terms for both range from five to 15 years. With fixed-rate loans, the monthly principal and interest stay the same. Adjustable-rate loans usually start at a lower interest rate—meaning a lower monthly payment—but can climb to a predetermined cap based on market conditions. Most banks and mortgage companies are happy to make home equity loans because the loan is secured by a tangible asset that can be seized an View the rest of this article