Recent changes to the national tax code have impacted several areas, including the deductions some home owners were used to taking. This reform affects home equity loans and lines of credit. Here’s the information you should know, and some solutions to help you better manage these changes.

Community Lender working with a customerFirst off, what is Equity?

Home equity is the difference between a home’s market value and the amount owed on a mortgage. For example, if a house is valued at $200,000, and the remaining mortgage balance is $150,000, then the equity on the home is $50,000. Many financial institutions will lend up to a percentage of the total equity available, depending upon the nature of the loan. Borrowers can access equity in the form of an Equity Loan, which is a one-time loan with a fixed interest rate, or a Home Equity Line of Credit, which is an open-end loan (like a credit card) that borrowers can use as needed during the draw period of the loan.

What do these tax changes mean?

Before these changes to the tax bill were made, homeowners with an equity loan or line of credit on their homes could deduct the interest they paid on the loan up to $100,000. However, 2017 will be the last year that borrowers can take advantage of this deduction. Even current equity loan users will no longer be able to write off the interest they pay on these types of loans.

For more information on the recent tax law changes, visit https://www.irs.gov/newsroom/resources-for-tax-law-changes.

Are there any solutions to prepare my finances for this change?

Even though these changes may impact the tax benefits of utilizing your home’s equity, there are still solutions that will help you maximize your home’s value and ease the strain on your finances. “Many people don’t realize that banks – local institutions with more flexibility in particular – have several mortgage and refinancing options that can assist with using a home’s value to fund large purchases, like home improvements,” says Thomas Dufault, Senior Vice President of Retail Lending at Main Street Bank. Here are some solutions to maximize the tax benefits of your home loan:

  • For those with existing equity loans and lines of credit, consider the benefits  and convenience of quick and easy access to funds even without the interest deduction. “These loans still have a place as a financial solution,” explains Dufault. “A good lender will be able to help you strategize the best way to manage your payments.”
  • Consider refinancing options on your existing mortgage when funding large-scale projects. “We’ve helped customers with creative mortgage solutions to help utilize the value of their homes to pay for other expenses,” says Kathy Schreck, Vice President of Retail Lending. “A smaller, local lender will be able to work with you on a closer level.”
  • Deduct interest on home equity loans when most of the funds are used for home improvements. “When a majority of the proceeds from a home equity loan are used to improve the property, it will likely qualify for a write-off.” Dufault explains. “Working with a tax consultant or financial planner will help you determine what will be eligible for tax deductions.”
  • Talk to your local lender. “There may be options you don’t even know about, and that’s where we come in.” says Schreck. “We’ve been able to help our customers with more unique loan situations that other loan providers could not.”

“The tax changes aren’t a reason to panic about your current equity loan,” assures Dufault. “This is an opportunity for you to work with your local resources – a lender, financial advisor, and tax consultant – to optimize your loan options. We’re glad to be your first phone call for help.”

To reach Main Street Bank for assistance with a mortgage or equity, please contact one of our lenders.