Home equity loans are simple yet are sometimes treated as complicated. It’s a type of loan that allows a person to borrow against the value of their home, and to take advantage of equity they’ve built up.
Most industry experts express that homeowners should take more advantage of home equity loans, believing it to be a viable treatment of their best asset.
Here’s some basics that are important for everyone to know.
Low Rates, Relatively Easy Approval and Potential Tax Benefits
Typically, with home equity loans you can receive a fair interest rate, especially when compared to other loans. While not guaranteed, most homeowners can get approved even if they have bad credit, because your home is strong collateral.
As well, interest on a home equity loan can potentially be tax deductible, but not in every case. This is one question you will want to ask your accountant.
Large Amounts for Borrowers and Secured Loans for Lenders
Home equity can help you access a large sum of money if you need to overcome financial difficulties. It can also help you pursue a business opportunity or to fund an education or deal with a medical emergency. These things cost money, sometimes more than you have liquid in savings.
These loans are secured loans because banks feel comfortable extending you a loan based on the equity in your home.
You can borrow with a Home Equity Loan in Two Ways
Borrowers have two options when they are approved for a home equity loan. They can receive a lump sum or it can be dispensed as a line of credit. With a line of credit the money will be made available and you only repay what you use.
The way you borrow effects the repayment plan and accrued interest.
Be Wise in how you Borrow when your Home is Involved
As with anything, there are some pitfalls with home equity loans. Since your home is involved you don’t want to borrow against it to travel or repay a credit card. It is best used in specific situations and can be incredibly beneficial in those circumstances.