Like many Florida homeowners, your insurance company may have notified you that you must replace your roof to renew your policy. Where can you find the $30,000 or more for the tiles and labor? Probably under that roof. It’s time to shop for a home equity loan or home equity line of credit. Tropical Financial Credit has a money-saving offer for members.
If you purchased your home in the last decade, you may be shocked to learn how much it has appreciated. The median sales price of a single-family home in Miami-Dade County was $610,000 at the end of 2023, more than double the $235,000 at year-end 2018, according to the Miami Association of Realtors.
Through December, that dollar figure had risen 145 consecutive months or 12-plus years. Market values have soared in other parts of Florida.
Can you tap the hidden value in your home? Yes, if you shop wisely and follow IRS rules when deducting the interest paid.
Here are some of the questions to ask a loan officer about a home equity loan:
- How much can I borrow, and what factors determine that amount? Tropical Financial will loan up to $250,000. A lender will likely require an appraisal and information such as your mortgage balance. A credit union or bank will also look at your credit rating and personal debts such as car loans and credit card balances to determine how much you can afford to repay each month.
- What rate will I pay on a home equity loan, and how is it calculated? Lenders such as Tropical Financial charge a fixed rate. Others tie the rate to a public index such as the prime, and some offer both.
- What are the repayment terms and options? Tropical Financial offers terms of 5, 10, 15 and 20 years, for example. The longer the term, the lower your payments. The choice depends on how much you can repay monthly and how long you plan to stay in your home.
- Are there any prepayment penalties? You want to avoid getting socked with a surprise expense should your financial plans change.
- Would I be better off with a home equity line of credit? A HELOC, as the credit line is known, offers you the flexibility of drawing money whenever needed and paying it back in different dollar amounts each month. However, the rate is likely to fluctuate, which means you’ll lose protection against a sudden, considerable rise in interest rates like the one we recently experienced.
- What upfront fees and closing costs are associated with the loan, and are any negotiable? Ask for a detailed, printed list from a prospective lender. Through April 12, 2024, Tropical Financial is waiving closing costs and providing a $250 rebate on home equity loans and HELOCs of at least $15,000. For more details and a list of disclosures, visit:
- What about the interest costs? Are they tax-deductible from your federal return? Yes, if they are for improvements such as a new roof to your first or second home. No, if they are for personal expenses or debt consolidation.
Know this: The deduction is tied to a dollar limit of $750,000 for couples ($375,000 for individuals) on the total amount borrowed against your home. Second, you must itemize all the deductions rather than taking a standard deduction.
Make sure you have the most up-to-date information. The Tax Cuts and Jobs Act of 2017 modified the rules for home equity loan interest deductions. Those changes expire after 2025.
For comprehensive information on home mortgage interest deductions, including home equity loans, refer to IRS Publication 936.
