With a low interest rate, a 100% home equity loan can help you get the cash you need. Even though this option looks good because it has good rates and tax benefits, you should first think about your own finances. You can get a better idea of how much a 100% home equity loan can help you by asking yourself the following questions.
How much does your loan cost?
Is the APR on your potential home equity loan lower than what you could get on a personal loan or credit card? Most likely, the rates on home equity loans are better. If you don't know, you should look into rates right now. Lenders will put their APR on their websites, or you can get a quote by email in minutes.
When you borrow more than 80% of the value of your home, you can't get the best rate. Even so, this can still be cheaper than other ways to get money. Another thing that goes into the cost of your loan is the tax benefit, which you don't get with a credit card or personal loan.
How will your loan help you with your money?
Do you want to pay off high-interest debt or go shopping for furniture? Taking out all of your home equity makes sense if your finances will get better right away. Save up for purchases that won't get better over time.
When you use all of your equity, you lose a safety net that you can use in case of an emergency. If you don't have any other cash on hand, it's best to use another type of credit or only part of your equity.
When are you moving?
When you want to move is another thing to think about. If you use up all of the equity in your home now, you won't get much when you sell it in a year or two. After a few years of making principal payments and watching the value of your home rise with the market, you'll have enough equity to get something when you sell.
The best time to use all of your home equity is when you can make money right away. If not, keep at least some of the value of your home for when you need money. No matter what kind of loan you choose, you should always check with more than one lender to make sure you're getting the best deal.
