Your equity is the amount your home is worth on the market minus the amount you owe your mortgage broker. For example, if your property is worth $ 200,000 and the balance you owe your mortgage broker is $ 100,000, then the equity in your home, the part of your property that you own free and clean, is $ 100,000 .
A home equity loan is a loan that uses your home’s equity as collateral. That means you are using your home as collateral that you will repay the loan. Before you even consider borrowing against your home equity, you need to understand that the loan reduces your equity by the amount of the loan, and that if you don’t repay the loan, you could lose your home.
These loans have advantages and disadvantages compared to other types of loans. You should consider the “pros” and “cons” of borrowing against your home’s equity before applying for a home equity loan.
Plus
* The interest paid on a home equity loan is tax deductible, as is the interest on your mortgage. Of course, this is not the case for credit card interest.
* The home equity loan rate may be lower than other types of loans, such as credit card debt, because you are using your property to ensure that the loan will be repaid.
* A home equity loan provides you with a source of funds for major major purchases: college education, home improvement, a medical emergency, or other emergencies that may arise.
Disadvantages
* You must make your mortgage loan payments or you could lose your home.
* You will often have to pay closing costs, which can be substantial, this is money that will not be recoverable and will decrease the value of your loan.
Having excess equity in your home will make you the target of unscrupulous sales tactics designed to get you rushing to get an expensive loan that you may not need. If you feel pressured to borrow, just say no; always take your time when applying for a home equity loan.
There are reasons that make a home equity loan a good option, but also reasons that are not. You should consider them wisely.
Good reasons to apply for a home equity loan.
* Improve your finances: A home equity loan can consolidate your debts by paying off high-interest credit cards or other high-interest loans that are not tax deductible.
* Invest in your home: You can use a loan to increase the value of your home by using it for necessary improvements or repairs.
* Invest in your future: Home equity loans can help finance an education or start a business.
Bad Reasons to Apply for a Home Equity Loan.
* Spend the money on luxury items: Don’t risk your home to buy that new car, big boat, or take an expensive trip. You must save until you can afford it.
* Use of money for living expenses: If you spend more than you earn day after day, a loan will only delay the “inevitable”. Instead, try to find ways to cut your expenses. A credit counselor can help.
* Lend the money to a friend or relative – Remember, it is your house that is at stake. Don’t let a friend or family member pressure you into applying for a loan for them. If they don’t pay you back, you don’t lose anything, but you could lose your home.
If you are considering getting a home equity loan as a last resort out of serious financial trouble, WHOSE. Chances are you will run into debt again and will soon be as bad as you are today, possibly losing your home as well. Get help instead! A credit counselor can help you improve your finances at little or no cost to you.