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You should consider a home loan only as a last resort if you do not qualify
for a business loan. In addition, the interest rate on a home loan is also lower
then a small business loan. If you have a spouse that is going to continue
working, a home loan may be a good choice, since his/her additional income may
be able to pay the additional mortgage payment. When you refinance your
mortgage, or take out a second mortgage, the bank will not ask you what you
intend to do with the money. Many people use mortgage refinancing as a way
of funding home improvements and college tuition. Under no circumstance
should you use the extra money for vacation, or to go on shopping spree.
Since homes have significantly appreciated in the last few years, you
probably have a significant amount of equity in your home. Equity is the
nominal amount of the asset that you own, or the amount the home is worth, less
the mortgage owed to a lender. You can borrow against the equity that you
own in your home. The interest on this loan is generally not tax
deductible, since you have already deducted the amount in past tax returns. The
interest rate depends on what the interest rate is that day for your mortgage
product. Since refinancing almost always requires a significant amount in
fees, somewhere between 2-5% of the value of your real estate, most people only
refinance when the interest rate is significantly lower than their current rate.
If you want to avoid the application fees, a home equity line of credit is
probably the best alternative. It works like a credit card, where you
borrow money as you need to, and return when you can. There is a set
minimum that must be repaid. The loan interest is entirely tax deductible.
Most banks don't charge an application fee, or the amount is significantly less
then refinancing. This is a good choice if you just need money to get
through the early bumpy years of a business. If you cannot repay your home
loan, you will lose your home in foreclosure. Make sure you have enough
emergency cash on hand to make the payments each month.
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