ABA Family Legal Guide

The Rights of Older Americans

Housing and Long-Term Care Options

Home Equity Conversion

What about a regular home equity loan?

A traditional home equity loan is very different from a reverse mortgage and can be a risk for an older person on a fixed income. As with a reverse mortgage, you borrow against the equity you have built up in your home. But in a home equity loan, you must make regular monthly payments, or you may lose your home.

There may be some tax advantages, however. Since it is no longer possible to deduct interest on consumer goods such as car loans and credit card bills, many homeowners have turned to home equity loans. With such loans, you can use the money for any purpose, and deduct all the interest you pay on a loan up to $100,000. You can even deduct the interest on a home equity loan that exceeds $100,000 if you use the money for home improvements. However, if the difference between the fair market value (FMV) of your house and any preexisting debt on the house, such as a mortgage, is less than $100,000, interest on the home equity loan is deductible only for an amount no greater than the difference between the FMV and the preexisting debt. For example, if your house is worth $150,000 and the balance on your mortgage is $110,000, you can deduct the interest on only $40,000 of a home equity loan, although you may take out a larger loan if you wish.