On TV, there's a good chance that you'll see at least one ad for a home equity loan almost every day of the week. They are getting more and more popular. How do they work, though, and do you get anything out of them?
Basically, a home equity loan lets you borrow money using your home as collateral, as long as you have paid down your original home loan and now have equity in your home. Let's say you bought the house for $100,000 and now only owe $75,000 on the loan. The home's value has also gone up, and it is now worth $125,000. You might be able to get a $50,000 loan against the value of your home.
There are some benefits to getting a home equity loan. One of the most important is that most home equity loans have lower interest rates than other types of loans. Even if you have credit problems, you might still be able to get a home equity loan because you use the value you've built up in your home as collateral. Also, most of the time, you can deduct the interest you pay on the loan from your taxes. Lastly, with other kinds of loans, you might only be able to borrow a small amount, but with this kind of loan, you can usually borrow a lot more.
People who want to make big purchases often find that home equity loans are a good option. Such costs could include buying a car, remodelling, going on vacation, getting medical care, or paying for school. In some situations, it can also be helpful to combine debts with high interest rates and pay them off with a home equity loan with a lower interest rate.
There are some bad things about a home equity loan, but that's true of most things in life. One of the most important is that you could lose your house if you can't make the new loan payments. Also, as there are more and more home equity loan lenders, it is becoming clear that some of them are run by con artists who only want to make a quick buck. Make sure to always check with the Better Business Bureau to make sure any lender you're thinking about is real.
Of course, the fact that there are so many lenders who offer home equity loans today can be a good thing for you, since it gives you more power to shop around for the best rates.
Still not sure if you should get a home equity loan? Make sure you always get the best quote you can, and ask yourself if the reason you want the loan is worth the risk you may be taking. If you think it is and you are sure you can meet the payment schedule without putting too much strain on your finances, do your research first to make sure you have everything covered.
