What is a Home Equity Loan?
Home Equity Loan Basics
A home equity loan (HEL) is a type of loan where you borrow money against your home and its accrued equity. Your home serves as the loan’s collateral.
A home equity loan is often referred to as a second mortgage. The loan process works just as its name implies. For example, if your home is valued at $300,000 and you still owe $200,000 on the house, you can receive the $100,000 which you have paid off. The $100,000 will be given to you, creating a second mortgage that you have to pay back.
Home equity loans are paid in a lump sum and come with a fixed interest rate. In other words, they are a great funding source if you’re a responsible borrower. If you have a plan for what you’re going to do with the money, then a home equity loan is beneficial because it also comes with low-interest rates and is tax deductible. Many take out a home equity loan for home renovations, to take care of high-interest debt, and for other needed expenses.
However, the drawbacks to second mortgages are numerous. The real estate industry has many stories of people who found themselves in worse financial shape after taking out a home equity loan because they struggled to pay.
Because it is a secured loan, there is always the risk that you could lose your home if you cannot pay off the balance. If you have a history of debt consumption, a home equity loan may be harmful because it will sink you deeper into debt.
However, life is unpredictable and things happen. A home equity loan is a viable option for a reason. It allows people the ability to access money for needs and emergencies.
What Can You Use a Home Equity Loan For?
A Home Equity Loan (HEL) can be used for:
Urgent Repairs
Personal Emergencies
Real Estate Renovations and Remodels (Ideal for a full-time real estate developer.)
Pay Down Debt
A home equity loan often has different terms, but it’s often a better option than a typical unsecured loan. There are numerous home equity loans with negotiable rates and terms to choose from. And while the fixed-rate is meant for a one-time equity advance, longer-term loans are available. Plus, there are no closing costs or origination fees.
Added debt, additional payments, and using your home as collateral are daunting prospects that come along with taking out a second mortgage. However, it offers an accessible line of credit if you need it. And emergencies happen!
Future industry predictions suggest that millions of people will be taking out home equity loans in the years ahead. It can help manage rising tuition costs, needed house improvements, urgent circumstances, and more.
If you need a home equity loan and can manage the payments, then this is the loan for you. Reach out to us or your lender and start the process now. Your plans and goals await!