Читать книгу Horse Economics - Catherine E O'Brien - Страница 30

♦ A home equity loan usually offers a fixed rate of interest and a payment schedule that matches a simple-interest amortization schedule (see p. 105).

♦ A home equity line usually offers a variable rate of interest and is a line of credit. It is similar to a credit card, the difference being that the loan is secured by your home.

Note: you do not have to refinance in order to obtain either a home equity loan or line. Both are separate transactions in addition to your primary mortgage.

♦ A fixed interest rate loan charges the same rate of interest on your remaining balance from month to month.

♦ A variable interest rate loan fluctuates with the prime lending rate. As interest rates go up, so do your payments.

Refinancing may not be worth the cost for those who have recently obtained a mortgage. Discuss your options with a mortgage broker or loan officer. Items to consider when refinancing include: the interest rate you can obtain with your credit rating (see p. 35); the number of points (each point is 1 percent of the amount of the loan) the lender would charge; the mortgage fees and other costs associated with refinancing; how long you plan on keeping the house; and the tax effect.

Home Equity Loans

A fixed-rate home equity loan^♦ is a way to consolidate your bills and lower your interest costs by paying off high-interest credit cards and car loans. The interest on the home equity loan may be tax deductible providing you have not mortgaged over 100 percent of your home’s market value. (Consult your tax advisor before obtaining a home equity loan, as other constraints may apply and the tax code changes frequently.) The major drawback to a home equity loan, or home equity line^♦, is that the debt is secured by your home, so if your payments fall behind, you could lose your house. Remember, if you pay off credit cards with your loan or line only to run up balances again, you will find yourself in financial “hot water.”

Credit Cards

One way to reduce your interest cost on debt is to transfer credit card balances to a card with a lower, fixed interest rate^♦. But, be aware that continually switching cards to obtain low, introductory offers may not be beneficial—for several reasons. First, many cards have a variable interest rate^♦. In such cases, initial low rates “spike” after the introductory period, and you may end up stuck with debt on a card with a higher-than-normal interest rate—not the optimal situation for debt management. Second, lenders don’t look favorably on “card hoppers” who haven’t established a consistent credit history with a particular lender.

Student Loans

If you have qualified student loans (those used for school-related needs such as housing, books, and tuition), consider consolidating them. With consolidation, all the loans taken out each school year are wrapped into one, and you can “lock in” to a low, fixed rate of interest for the life of the loan and extend your payment term, making your monthly payments much smaller. Under most circumstances, interest on student loans is tax deductible. Consult your tax advisor on limits for the deduction concerning adjusted gross income levels and filing status.