Are there improvements you need to make to your home? Are you thinking of consolidating debt? If you’ve answered yes to either of these questions, you may want to consider taking out a home equity loan. Let’s take a look at what it is and why it could be beneficial for you.
What is it?
Buying a home means building equity over time. If you need it, you can use that equity to take out a small loan. An article written for discover.com explains this more in detail by saying, “A home equity loan, often referred to as a second mortgage, allows you to borrow money for large expenses or to consolidate debt by leveraging the available equity in your home. Your home equity is based on the difference between the appraised value of your home and your current balance on your mortgage. For example, if the value of your home is appraised at $200,000 and you still owe $150,000 on your mortgage, your available equity is $50,000.” It goes on to say, “A home equity loan is essentially a one-time consumer loan using your home as collateral. If your home is worth more than you owe on it, you have equity, and may be able to use this equity to borrow money.”
Why Would You Need It?
A home equity loan is also a great option if you want to make improvements to your home. For example, maybe you decide you want to redo your kitchen. Hypothetically, you could take out a $15,000 home equity loan to update the space. Given that a kitchen will yield a significant return on investment, it would be worthwhile for you to utilize your home equity line to get that project done. Spending $15k to renovate when you’ll likely to make that money back and more when you sell is a responsible use of funds. Your other option in using this type of loan would be debt consolidation. Because mortgage rates are so low, people often use their home equity to pay off other debts. This leads to a higher mortgage each month but can ultimately save you money in the long run.
Home Equity Pros
There are several pros to taking out a home equity loan. An article written by Natalie Campisi for bankrate.com lists the following, “1. Payments are structured and begin right away, which makes it easier to budget. 2. Home equity loans usually have a fixed rate, so the amount you pay will likely stay at or close to the same amount each month. 3. If you aren’t planning to start remodeling immediately, you can move the money to an interest-bearing account and earn money on your money. 4. All money is disbursed upfront, making the loan a good option for large-scale improvement projects.”
Whether it’s home projects or debt consolidation, home equity loans are a worth considering. Talk to your mortgage officer to see if this is an option for you.