With the current credit crunch that dangerous period of time is now.  As these subprime mortgages reset to higher rates and thus higher monthly payments, many of these homeowners are in a financial bind. Many may even lose their homes because they can no longer afford payments. Should the homeowner lose income due to job loss the problem becomes more acute. Foreclosure proceedings usually start when a homeowner is ninety days late.

If you have an ARM, you should look at your personal finances to insure that you will remain solvent in these upcoming tough economic times we are facing in this recessionary period. Aks yourself these questions. How high can your monthly home loan payment go? Will you be able to afford it when it resets? Talk to your financial adviser and determine if refinancing to a fixed rate is the best thing for you to do. I believe that locking in a 30 or 15 year fixed rate home loan is the safest choice you can make at this time although everyone’s situation is different.

There are many mortgage and home loan companies that will provide you with refinancing options for your adjustible rate mortgage. Unfortunately, given the credit crunch, many of these companies have become much more stringent in regard to your credit worthiness for a fixed rate home loan. Today, it is much harder for most people to be able to borrow money than it was when they initially purchased their home or took out a second mortgage or home equity line of credit.

Do you need to refinace your home loan to avoid the subprime adjustable rate mortgage trap?

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A home equity line of credit can be used as an itemized deduction in cases where a person is legally liable to pay the interest on the home loan. For example, you pay the interest during the course of the tax year for which you’re filing  your taxes and the debt is secured with your home and the interest that is deducted does not exceed the limitations specified and set forth by the Internal Revenue Service.  It is also important to note that there are limitations that exist on the amount of interest that can be deducted as a second mortgage from your taxes.

It is important to note that there is a difference between a home equity line of credit, sometimes called a HELOC, and a standard home equity loan. This is very important since there are consequences to each type of loan.  These differences are important especially when considering your taxes and how much interest can be deducted from your taxes.  Home equity loans have a number of specific characteristics that cause them to be different from the standard home equity lines of credit. These differences will come into play when you file your taxes.  A home equity loan has a fixed interest rate that doesn’t change over time. It also has regular monthly payments that have been timed and sized to pay off the home loan over the defined time limit as established by the financial institution that gave the individual the home equity loan in the first place.

A home equity line of credit, or HELOC, is different in several aspects.  In this case, the line of credit does not have a fixed interest rate.  Instead, the HELOC has an adjustable rate of interest.  The interest rate is typically tethered to the changes in the prime rate of the line of credit.  In response, the prime rate of the line of credit is tethered to changes that have occurred within the targeted federal funds rates.

The HELOC is considered to be a second mortgage on a home by the IRS.  Any mortgage that is placed on a home other than the primary mortgage loan which is taken out in order to purchase, build or reconstruct the home is considered to be a second mortgage by the IRS.  Therefore, the HELOC is considered to be a second mortgage. This means that it is deductible as a second mortgage if the individuals are able to meet the IRS tax criteria. It is possible for a HELOC to be considered as a second mortgage. In this case, the interest is deductible from your taxes.

There are limitations that exist on HELOC deductions that include that someone cannot deduct more than $100,000 in interest per year.  If a couple is married but filing separately, the individuals, on their own, may not deduct more than $50,000 each.

I hope this article has provided you with more information about deducting a home equity line of credit home loan.

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