Home Equity Loans
Home equity loans (also known as HELs) are loans available to current home owners, wherein lenders compare the market value of your home to the amount of money you owe. If the difference is large enough, you become eligible to "cash out" some of the money on your house, using your home as collateral. Since home equity loans are secured by the capital already present in the form of your house, they often come with low interest rates and other perks.
Why Get a Home Equity Loan?
Each person and situation is unique, so the only way to know for sure if
you're doing the right thing in getting a home equity loan is to talk to a
lender you trust. However, there are some common reasons why homeowners
seek home equity loans.
An Existing High Mortgage Interest Rate:
If your credit was bad when you bought your home, or if you purchased your
home when the buying market was down, you may have an interest rate that
doesn't reflect your current financial status. A home equity loan can
reduce your interest rate, saving you tens of thousands of dollars over the
life of the loan.
High Interest Credit Cards or Debts:
Most home equity loans have competitive interest rates, especially when
compared to credit cards. For example, if you transfer your debt from a
credit card with 20 percent interest to a home equity loan with 7 percent
interest, you'll save quite a bit of money each month.
Pay for Education Expenses:
If you're going back to school or your child is heading that direction, a
home equity loan can get you the money you need to pay for tuition and
other expenses. With student loan interest rates on the rise, this option
is becoming more popular.
Pay for Medical Expenses:
Heavy medical bills can put great financial strain on a family. Using a
home equity loan to pay the bills makes day-to-day living much easier.
Take on home improvements: Because doing remodeling work (such as kitchen repairs or a new roof) often increases the overall value of your home, taking a home equity loan out for improvements is typically a sound investment. Many home owners wait to do repairs for when they plan to sell a home; however, home equity loans give you the opportunity to enjoy the improvements now.
Although not everyone is qualified or ready for a home equity loan, they can provide a great way to take advantage of the capital already present in your home.
