If you need to pay for an expensive purchase or want to consolidate your debt with a single loan, a home equity loan is a terrific way to do so. A home equity loan is a financial product that permits you to borrow against the equity in your home. Your home's equity is the difference between what you owe on the home and your home's worth.
For example, if you owe $140,000 on your home that is worth $200,000 and your bank will extend a home equity loan for up to 80 percent of your home's value, you can borrow up to $20,000 of your home's equity ($200,000 multiplied by 80 percent, less than amount that you owe). Here are just a few reasons a home equity loan makes sense for your next purchase.
1. Home Equity Loans are Affordable
One of the best characteristics of home equity loans is that they have affordable interest rates. Since your home acts as collateral for your loan, they are a secured loan that is less risky for the lender. Interest rates are usually slightly higher than those for first mortgages but are much lower than rates for other types of debt products, such as credit cards.
Home equity loans also have low fees. There may be some closing costs when you first take out the loan, and a yearly maintenance fee may be required. Check with your lender to see that you understand all of the terms and conditions.
2. You Have Options for the Type of Home Equity Loan Product That You Use
There are two main types of home equity loans. The first is an installment loan that you permits you to receive a lump sum of money one time. This option has a fixed payment, fixed interest rate, and fixed term.
The second type is known as a home equity line of credit; it functions more like a credit card. You only take money from the line of credit when you need it. The repayment term, interest rate, and your payment all vary depending on how much you draw from the line. If you pay off or down the line, you can use it again.
3. Credit Requirements are Less Stringent than Those for Other Personal Loan Products
Lenders are more likely to approve individuals with poor credit for a home equity loan because it is secured loan. Again, this trait is important because it protects the lender if you can't repay the loan. If you have damaged credit but have ample equity in your home, not only is a home equity loan relatively easy to qualify for, but it is one of the most affordable sources of money.
For more information, contact your local mortgage services.
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