What Is A Home Equity Loan – A home equity loan is where a borrower uses its home as a collateral. An equity loan is taken to finance major expenses such as home repairs, medical expenses or college education.
A home equity loan is a difference between the worth of your home and how much you still owe on your mortgage. The more equity you own, the more you can borrow. One of the best advantages of the home equity loan is that interest rates are low and tax-deductible.
Remember if you cannot repay the Home Equity loan, you might have to send your home to repay the amount of loan.
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What Is A Home Equity Loan
When life throws you on financial curveball it may be due to your credit card bill or you need to renovate your home. In that case, you need a handsome amount of cash that you don’t have. The Home equity loan is the best option in this case.
Uses of Home equity loans
- Remodel, renovate or improve your house.
- College Education fee for your family member.
- Mobilize the purchase of new investment such as home/land.
- Consolidate high-interest loans
Types of Home Equity Loan?
- Lump-Sum Equity Loans
This home equity loan is similar to the primary mortgage. To borrow a lump-sum money, use the property as security and repay the amount of loan to the lender at the variable/fixed rate of interest.
- Variable rate of interest
The variable rate is usually lower but can rise or drop during the life of the Home Equity Loan.
- Fixed rate of interest
In the fixed-rate loans, the interest rate remains the same throughout the loan and you need to pay the similar amount every month.
- Home Equity Lines of Credit
HELOC works similar to the credit card. The lender pre-approve your certain spending limit. You can withdraw when you need until you reach your limit. Home Equity Line of Credit has a different set term.
As you reach the end of the term, the loan must be repaid in full. The rate of interest for HELOC is variable and it is like a credit card, so your monthly payments depend on the amount you borrow and the prevailing rate of interest.
- Reverse Mortgages
A Reverse Mortgage is a special type of home equity loan available for senior citizens (62 or overage). One can select the option borrowing a lump sum or be receiving the monthly amount, like a pension, temporary or until you die or sell the house.
The big difference between reverse mortgage and other home equity loan is that you don’t need to repay until you die or sell the property. Reverse Mortage is more expensive over the other loans, so you may want to explore another method of raising money before selecting to a reverse mortgage.
Why is the Home Equity Loan is Attractive?
Home equity loans are the attractive amount the borrower as well as the lender. I am going to mention some key benefits for borrowers.
- Low-Interest rates
The home equity loan is available at the low rate of interest (APR) over the unsecured loans such as credit card/ personal loans. Of course! A low rate can help to keep your borrowing cost low.
- Approval of the Home Equity Loan
If you have a bad credit history even then can qualify for Home Equity Loan. A lender has a collateral security to manage its risk.
- Big amounts
A borrower can qualify for the relatively large amount of loan assuming that you have a sufficient equity. The big expenses like home repair, higher education, starting a new business or expanding the old one home equity will be a great source of funding.
- Enjoy the tax benefits
You can claim the tax deduction for the interest you have paid for your Home Equity Loan. As your tax consultant for the details before you borrow and before you claim a deduction.
Sounds great! If you fail to repay the amount you lend the bank can take your property and sell it to recover the unpaid funds. So prioritize your home equity loan if you don’t want o lose your sweet home. What Is A Home Equity Loan