House rich but cash poor? You can get your hands on needed cash with a home equity line of credit, secured by your home. Recently, the national average interest rate on such loans was around 5 percent.
Generally, these loans are really second mortgages: if you have a mortgage on your home you also can get a home equity line of credit (HELOC), depending on the value of your home and your mortgage balance. Say you have $300,000 home and an outstanding mortgage balance of $200,000. You have $100,000 worth of equity in your home so a lender might extend you a $50,000 HELOC. Once you have a HELOC you just write a check when you want to borrow money.
Under the tax code, interest on a HELOC is deductible–up to a loan of $100,000. It doesn’t matter how you spend the loan proceeds. If you borrow $100,000, all of your interest payments will be tax-deductible; if you borrow, say, $125,000, the interest on $100,000 is deductible but the interest on the other $25,000 won’t be deductible. In other words, you can deduct 80 percent of the interest you pay.
As you pay down your $125,000 HELOC, a greater portion of the interest payments will be deductible. By the time your HELOC balance is paid down to $100,000 or less, all of the interest will be deductible.