New Jersey is different from a lot of US states in that its home values are higher than average. Naturally, New Jersey residents want to use this to their advantage. To do so, one might seek out a New Jersey home equity loan to refinance their debts, or borrow inexpensive money from their home equity.
In places where the market prices for homes are well above average, the home equity loan is more popular. New Jersey, being in the heart of the east coast, has high property values, and a financially-astute population. Many people work in New York, only to commute back to their homes in New Jersey at the end of the day. Naturally, this group is very interested in finance, and using a home equity loan to improve their personal finance.
Home Equity Loans Explained
A home equity loan is simply a loan you take out against the current value of your home, minus any existing debts on your home. For example, if you were to own a $500,000 home and have an outstanding mortgage worth $300,000, then you would have home equity worth $200,000.
Unfortunately, most people cannot borrow 100% of their home equity. Instead, a New Jersey home equity loan is likely to come with a “loan to value” clause, which states that the lender will make loans only against a percentage of the home’s value. Generally, the threshold for a loan to value is 80%, meaning the bank will allow you to have 80% of your home’s value in debt.
Thus, on a $500,000 home, a bank will allow a New Jersey homeowner to have up to $400,000 in first and second (home equity) mortgage debt. So, if you were to own a $500,000 home and have $300,000 in debt outstanding, the bank would be willing to loan the difference of $400,000 (80% of the home’s value) and the current debt ($300,000) for a loan of $100,000.
Home Equity Financing
New Jersey home equity loans are a great way to finance any major project. In general, homeowners use home equity loans to pay down other high interest debt, buy a new car or boat, finance the purchase of investment property, or invest in their retirement portfolios. A great deal of home equity loan interest also comes from people who want to borrow from their home’s equity to improve their home value with renovation projects, or major construction efforts.
Home equity loans are most appetizing to borrowers because they feature:
Low rates – The lowest rates on debt will always come from debt that is secured by real property. A home equity loan is secured by your home—if you can’t pay your loan, the bank takes possession of your home. This security allows a home equity lender to offer very low interest rates on home equity lines of credit, and many borrowers find that a home equity loan is cheaper than any car loan, personal loan, student loan, or any other type of consumer borrowing mechanism.
Tax advantages – Home mortgage interest, unlike car loan interest, or personal loan interest, is tax-deductible. Thus, if you were to pay $10,000 in interest in any given year, the amount of money beyond the standard deduction would go directly against your income for that year. Let’s assume that you had earned income of $200,000 one year, and paid $10,000 in mortgage interest. Through the tax code, you take that $10,000 off your income, thus meaning that only $190,000 of your income is taxed.
Simplicity – A home equity loan is easy to apply for and receive as long as you have sufficient equity in your home to borrow the amount of money you wish to borrow. Typically, a New Jersey home equity loan will feature a repayment schedule of 5-30 years, allowing you to enjoy the benefits of home equity today while paying a very low interest rate and monthly payment for a period of years.