Reports are surfacing about Floridians with housing damage being advised to take out a home equity loan rather than a loan from U.S. Small Business Administration (SBA) to make repairs. The SBA offers eligible homeowners low-interest disaster loans of up to $200,000 to repair or replace primary residences and up to $40,000 to homeowners or renters to repair or replace personal property.
Compare the following typical examples:
|Loan||SBA Home Disaster Loan||Home Equity|
|Interest rate||3.187 %||4.00%|
|Payment/month based on 30-year repayment||$44||$53|
Using this model, borrowers would save approximately $120 in cost and $80 in interest paid per year when choosing the SBA loan. Actual loan amounts and terms are set by the SBA and are based on each applicant’s financial condition.
Other advantages of the SBA loan include:
- There is no application fee.
- Renters - as well as homeowners - can get loans to cover personal property losses, even if they don’t own any real estate.
- Interest rates are fixed for up to 30 years.
With a home equity loan:
- Application fee may apply.
- Customers must shop around to find a lender with favorable loan terms and interest rates.
- Interest rates may fluctuate with the prime rate set by the Federal Reserve Board.
Interest on both SBA loans and home equity loans should be tax deductible as long as the home is used as collateral.
Individuals and businesses in a presidentially declared disaster area are allowed to claim disaster-related casualty losses on their federal income tax return for either this year or last year. See IRS Publication 547, “Casualties, Disasters and Thefts,” for more information on the casualty loss deduction.
If you need tax help and information, contact a tax accountant or lawyer. You also may call the IRS at 1-800-829-1040 or visit www.irs.gov.
Small Business Administration loans are the primary source of federal long-term recovery and cover uninsured or underinsured losses for personal property damages and real estate damages. After applicants have registered for disaster assistance with the Federal Emergency Management Agency, SBA loans are offered to individuals and businesses with an ability to repay them.
On March 1, 2003, FEMA became part of the U.S. Department of Homeland Security. FEMA's continuing mission within the new department is to lead the effort to prepare the nation for all hazards and effectively manage federal response and recovery efforts following any national incident. FEMA also initiates proactive mitigation activities, trains first responders, and manages the National Flood Insurance Program and the U.S. Fire Administration.