KNOWLEDGE CENTER

May 19, 2022

Home Equity Loans: Everything You Need to Know

Are you thinking about taking out a home equity loan? If so, you're not alone. A home equity loan can be a great way to access cash when you need it. But before you take out a loan, it's essential to understand how they work and what to expect. This blog post will discuss everything you need to know about home equity loans. We'll cover how they work, their benefits, and the risks involved. By the end of this read, you should better understand whether or not a home equity loan is right for you!

What are Home Equity Loans and How do They Work?

A home equity loan is a type of loan that allows you to use the equity in your home as collateral. So, when you take out a home equity loan, you're borrowing against the value of your home. The amount you can borrow is based on how much equity you have in your home. Equity is the portion of your home's value that you own outright, free and clear. For example, if your home is worth $200,000 and you have a mortgage balance of $100,000, you have $100,000 in equity. This equity you can use to take out a loan.   Home equity loans can be used for various purposes, including home improvements, debt consolidation, or other significant expenses. In addition, the interest rate on a home equity loan is typically lower than the interest rate on a credit card or personal loan. And because your home's value secures this loan, it may be easier to qualify for a home equity loan than other loans.

Types of Home Equity Loans

There are two types of home equity loans: a lump sum loan and a home equity line of credit (HELOC). With a lump-sum loan, you borrow a set amount of money all at once and make fixed monthly payments over the life of the loan. A HELOC works like a credit card; you're given a revolving line of credit that you can use as needed up to an approved limit. You only pay interest on the portion of the HELOC that you use, and you can make withdrawals as needed up to your limit. Note: The interest rate on a home equity loan is usually lower than the interest rate on other types of loans because your home secures your home equity loan. If you default on your loan, the lender can foreclose on your home to recoup their losses.

Benefits

A home equity loan can be an excellent way to consolidate other debts into a single, fixed-rate monthly payment. A home equity loan can also give you access to cash when you need it. You can use the money from a home equity loan for anything you need, including home improvements, medical bills, college tuition, or even a down payment on a second home.

Drawbacks

The biggest drawback of a home equity loan is that your home serves as collateral. Therefore, if you default on your loan, the lender could foreclose on your home. Additionally, if property values decline, you could owe more than your home is worth. Another downside of a home equity loan is that they typically have higher interest rates than first mortgages.

Closing Thoughts

A home equity loan is a good option if you need money for a specific purpose and want the security of knowing that your payments will remain the same. However, it is not for everyone. When shopping for a home equity loan, keep in mind that the interest rate is only part of the equation. In addition, it would help to consider the loan's term or how long you'll have to make payments. Some home equity loans have terms as short as five years, while others can last for 20 years or more. Some lenders may also charge origination fees or closing costs, so be sure to factor those into your decision. If you're considering a home equity loan, be sure to do your homework and compare offers from leading lenders to get the best deal. If you have any questions or would like a free quote, please feel free to contact us. We would be more than happy to help!

January 13, 2022

When Is The Best Season to Buy a House

May 4, 2022

First Anniversary of Partnership with Celebrity Home Loans!

April 28, 2022

Buy or rent? The case for Buying A House