With the money you get from a home equity loan, you can do a lot of things you might not be able to do otherwise. By using the equity in your home, you could get tens of thousands of dollars, depending on how long you've lived there. But if you plan well, there are some ways to use your home equity that could pay off much better in the long run than others. What you need to know about a home equity loan is listed below.
The more equity you have in your home, the longer you have lived there. If you live in an area where the value of homes is going up quickly, as it is in some places, your home could give you a lot of equity. You can get it quickly through several types of home equity loans. The loans that can help you the most are the ones that fit in with what you want to do.
You might be able to refinance your first mortgage and get a much better deal and access to your equity at the same time. This would mostly happen with a cash-out mortgage. You just refinance your mortgage to get a lower interest rate on what you still owe, and then add the amount you want to take out of your equity. At the same time, you can save tens of thousands of dollars more if you shorten the original terms by about five years.
A second mortgage is another option. Most of the time, this is done through a home equity loan, but you can also get a home equity line of credit. Both of these will let you use your equity, but they will also cost you more each month. A home equity loan is a straight lump sum loan, while a home equity line of credit gives you a little more flexibility by letting you take out only the amount of cash you need from an account with a pre-approved credit limit. You will also only have to pay interest on the money you take out.
You can get access to your equity in any of these ways, and you can use the money however you want. You can take that amazing trip to Hawaii or the Bahamas you've always wanted to take, pay for college or medical bills, or even combine some of your other debts. These choices, on the other hand, might not be the best ones.
The best thing to do with the money is to put at least some of it back into your home by making changes, improvements, or additions. Modernizing a kitchen with high-tech appliances and a sleek look, updating a bathroom, or adding a room are the home improvements that add the most value. Each of these, as well as many other things, can add a lot to your home's value and give you more equity.
Home improvements not only add to your home's value and equity, but they are also tax-deductible, which saves you even more money. Before you make any changes or additions, you should talk to a local Realtor or contractor to find out what building style or materials will increase the value of your home the most. Not everything you do to it will make it more valuable, so it pays to find out ahead of time.
When you go looking for a home equity loan, be sure to get quotes from more than one lender. This will give you a good idea of what's out there and let you compare the features. Stay away from loans that charge you a fee if you pay them back early.
