real estate finance - full book (500 pgs)

Costs to obtain a home equity line many of the costs

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Unformatted text preview: mitations were established. In the 1987 law changes, first applicable in the 1988 tax year, the present rules for deductibility of home mortgage interest were established. Deductibility – Home mortgage interest is deductible, with limitations, on first and second mortgages (including home equity lines of credit) on first and second homes, up to the following limits: • Home acquisition indebtedness, up to $1 million. Original home acquisition indebtedness can be increased by home improvement financing but cannot be increased by simply refinancing. Home equity indebtedness, up to $100,000. • Consumer Interest – while home mortgage interest remains essentially deductible, consumer interest deductibility has been phased out after 1990. The Lure to Home Loans – Instead of consumer financing, an automobile loan, for example, why not finance the purchase of a new automobile with a home equity loan, so that all of the interest will be deductible? The institutional lenders were quick to recognize this rich source of new business, the home equity line of credit – money for any purpose, with full deductibility of interest, up to the limits on home mortgage interest deductibility. HOME EQUITY LOAN CONSUMER PROTECTION ACT This new law, effective 1989, requires lenders who offer home equity lines of credit to meet much more detailed requirements or face stiff penalties. Dynasty School (www.dynastySchool.com) 15-7 REAL ESTATE FINANCE New Disclosures – Each lender must give to a home equity loan applicant a copy of the Federal Reserve Board's new consumer education brochure, and a sample 15–year chart of a $10,000 line of credit tied to a prime–rate index and with a 2% margin. Although the start rate of a new loan seems attractive to the borrower, the 15–year history shows how the loan could have changed in the past and might change in the future. Prohibitions – Unilateral changes in the terms of existing lines of credit are now prohibited. Indexes selected must not be within the control of the lender. Advertis...
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