Using Home Equity Loans To Buy A Car: The Pros and Cons |
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In all likelihood, you have seen advertisements telling you to use your home equity to pay for college tuition or buy a big-ticket item like a boat or a car. These ads about countrywide home loans can be a very tempting way to go. But you should make sure you understand the pros and cons involved with using a Countrywide home loan rather than traditional auto loans to buy your car. Countrywide home loans also offer a second mortgage on your home. Your home equity is the difference between the value of your home and the amount of the mortgage. Lenders typically lend up to 90% of your home's value. Under this scenario, if you own a home appraised at $150,000, the maximum your lender will loan is $135,000. If you only owe $100,000, you could qualify for a $35,000 Countrywide home loan. Lending guidelines vary widely. Some lenders will only loan up to 80% of the appraised value of the home, while others may lend as much as 125% of the appraised value. Closing costs can also vary by lender. Depending on the program offered, you could pay hundreds of dollars in fees to close your Countrywide home loan. Other lenders offer no closing cost loans. This can be a deciding factor for many when choosing Countrywide home loans and auto loans. The interest rate on Countrywide home loans is generally lower than that of traditional auto loans. A home equity line rather than a loan usually carries even a lower rate. Because of this, you can save hundreds if not thousands of dollars over the life of the loan. Because a Countrywide home loans is tied to your home, all interest paid on loans associated with it (up to $100,000) is considered mortgage interest and is deductible on your income taxes. It does not matter how the money is used. Of course, this is only a benefit to you if you are able to itemize on your income taxes. Interest paid on traditional auto loans is not deductible. For many people, this is the biggest draw to using countrywide home loans to buy a car instead of auto loans. Keep in mind, the IRS will only allow you to deduct interest on loans that do not exceed the total value of your home. If you have a $125,000 home with $110,000 mortgage, you would only be able to deduct interest for the first $15,000 in home equity debt. By financing you car through a Countrywide home loans rather than traditional auto loans, you are putting your home at risk. If you are enable to make your car payments, you now not only the risk losing your car but also your home. Another risk, though not as common, is the possibility of your home losing its value. In the majority of cases, real estate appreciates as time goes on making your investment better and better in the long run. But there have been cases where the market has taken nose-dive and property values have followed. In this scenario, if you sold your home and owed more than you received, you could end up having to take out additional auto loans to be paid long after you moved out of your home. If something disastrous happened and you needed access to a large sum of money such as a major home repair or medical expenses, home equity is usually the least expensive source of money. But if you have mixed out your home's equity by buying a car, this option may not be available to you. Your home's equity is a valuable asset that should be used wisely. With many dealers offering 0% or low interest auto loans, you should definitely look at all of your options before cashing in your home's equity. So, if you are able to get auto loans at lower interest rate, don't put your home at risk by availing Countrywide home loans. Because if you are not able to pay off your home loan, you can lose your home!! |
