A home equity loan is one of the most common types of loan available and can be a great way to provide you with the credit you need. Whether you’re looking for student credit or college tuition funds or even just looking for a new car or kitchen, a home equity loan can provide.
However, there are pros and cons to taking out this type of loan, and it’s important you consider both sides to ensure this is the right loan for you. Today, we’re going to explore the everything you need to know about a home equity loan, helping you make the right decision of whether this is the loan for you.
What is a Home Equity Loan?
In short, a home equity finance loan is similar to a mortgage but is generally smaller in cash value. Of course, each loan will depend on the provider, but the typical maximum amount will fall between 80-90% of your house value.
As a small example, if your house is worth $100,000, and you’ve paid back $30,000 of your mortgage, that’s $30,000 of equity of your property. You can then receive 80-90% of $30,000 as a loan.
Depending on the provider, you will have a pre-set number of years to pay the loan back with a monthly payment that will stay consistent through the term of the loan with interest added on throughout the term.
The Advantages of a Home Equity Loan
There are some great benefits to using a home equity loan to acquire credit, some of which we’ll explore here;
Potential Deduction on Tax
One of the most common benefits is the fact that home equity loans are commonly tax deductible. This is a benefit that forms of credit like credit cards don’t provide and can be a great way to save money while acquiring credit.
Lump Sum of Credit
When you need credit, a lot of times you’re going to need it quickly. With a home equity loan, you’ll be able to receive all the money in a lump sum, giving you instant access to your funds to pay for what you need to pay for.
Typical Lower Interest Rates
Home equity loans tend to have lower interest rates, which means you’ll be paying back less over time compared with other lines of credit such as credit loans or payday loans.
What Are the Best Times to Get a Home Equity Loan?
While there are many reasons to take out a home equity loan and this is a very flexible kind of loan. However, the most typical reason for taking one out is for larger purchases with a long period of time set aside for repayments.
If you’re looking for a smaller amount of money that you can pay back quickly, instant forms of credit like credit cards or overdraft loans may be more suitable. As a rule of thumb, if you’re looking for over $10,000, this is where a home equity loan may be ideal.
As you can see, there are plenty of benefits to enjoy when it comes to a home equity loan; you’ll want to be aware of all the options that are available to you from credit providers. If you’re looking for a large sum of credit, this kind of loan can be ideal, but remember of the other options out there, especially for smaller amounts.