Home Equity Loans 101
A home equity loan may be a great way for you to consolidate debt or pay for major expenses. You will be able to benefit from the security of a steady repayment schedule, fixed-rate payments on principal and interest for the life of the loan, and potential tax advantages.So if you’re a homeowner in need of money, and have accumulated equity in your property, this may be the loan for you. You’ll be able to quickly convert your homes equity into a lump sum of cash in your pocket.
People choose to draw on their home equity because loan rates are significantly lower than other types of borrowing, like the high interest rates on credit cards and even personal loans. There are also great tax advantages associated with home equity loans, since the interest on the loan may be tax deductible (within certain limitations). Another reason that home equity loans are appealing is that closing costs are relatively low and there is a speedy loan process.
Home equity loans are known as a term loan or second mortgages because they are subordinate to your primary mortgage. If you can’t afford to make your mortgage payments and subsequently default, the first mortgage gets paid off first from any proceeds of a sale. As a result, there is much more risk for lenders who give you a home equity loan. Consumers should always be aware that with the home equity loan the homeowner is basically putting the house up as collateral. This means that if you default the bank is eligible to take your home. But in most cases if you find yourself in this predicament, your lender may have two other choices: work with you on a forbearance plan, or negotiate a settlement.
How Much Can You Borrow?
When looking into a home equity loan you will need to consider how much equity you have in your current mortgage, because with the home equity loan you are borrowing against the homes equity. The homes equity is the difference between how much you owe on your home and how much your home is worth. In most cases you will be capable of borrowing up to 80% of your homes available equity. For Example if you have accumulated $100,000 in equity you may be eligible for up to $80,000. CLICK HERE to get your Home Equity Loan Quote Now.
What Can I Use A Home Equity Loan For?
There are no stipulations on how you must use the funds you get out of the loan. Many people use the money for their children’s college, home repairs or improvements. Some people will use this money to pay off high interest credit cards since these loans will have a much lower rate than the typical credit card.
How Does A Home Equity Loan Work?
There are two types of second mortgages the home equity line of credit, which is also known as a HELOC, and the home equity loan, which is also called a HEL. Unlike the Home equity line of credit that works like a credit card the home equity loan will pay out your funds in one lump sum. In most cases the term on your loan may be a 15-30 year term but the interest is typically a fixed rate. Many are drawn to these two loan types because the process is actually much faster than the traditional loan process.
Why Consider a Home Equity Loan?
Anyone with equity in their home can consider a home equity loan. There are many benefits when considering this type of loan including much lower interest rates than a credit card, tax advantages, and payment stability. If you have a large immediate expense such as college tuition or a home improvement the home equity loan is a great option since you receive all funds up-front and at a much ,much lower rate than a personal loan or credit cards.
Just like any other product you should always shop around to find the best rates and mortgage specialist for you, consider talking with a tax professional as well to make sure you receive the most out of your loan by going over any tax advantages that you may qualify for.