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TIPS ON HOME EQUITY BORROWING

• A home equity loan or line of credit could work in some cases for college tuition. But look into federal student loans first. The federal Stafford student loan does not involve a credit check. Remember, if you default on a home equity loan or line of credit, you can lose the home.

• Rates on home equity lines of credit are variable, while interest rates on federal education loans are fixed. Mark Kantrowitz of Edvisors.com noted that borrowers can currently get a fixed-rate home equity loan that is competitive with the federal Parent PLUS loan, if they have excellent credit. But the home equity loan lacks the flexible repayment terms of federal education loans.

• Home equity loans are tax-deductible. Up to $2,500 in interest is deductible for college education loans, too, as an above-the-line exclusion from income, which means you can claim the deduction even if you don’t itemize. But that student loan interest deduction is phased out or eliminated at certain income limits.

• The student interest deduction starts phasing out at $60,000 in adjusted gross income for single and $120,000 for married filing jointly. The home equity deduction is for the interest on up to $100,000 in home equity and requires itemization and may be subject to the alternative minimum tax. Talk to a tax professional about strategies.

Source: Detroit Free Press research



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