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Home Equity Loan Advice
Finding the Best Home
Equity Loans
If you need to finance education, make a home improvement, consolidate higher-cost debt, or fund an investment, a home equity loan may be the cheapest way to do it. Home equity loan interest rates are typically lower than those of almost any other kind of financing. Home equity interest may also be tax deductible--check with a tax or accounting professional.
How Does a Home Equity Loan Work?
Home equity loans allow you to exchange equity in your home for cash. Your home accrues equity in several ways:
Finding the best home equity loan depends on several factors--the use for the money, your timeframe, and the amount of equity you have. A home equity loan calculator can help you determine which product is best for you. For example, you could be better off refinancing your existing mortgage and replacing it with a larger one, taking the difference in cash. If your first mortgage terms are good, though, you probably want to leave it alone and get a home equity loan instead. The calculator can tell you which option saves you the most money.
If you choose a home equity loan, it can be either a fixed amount that you pay off in installments over time, or a line of credit that you can draw on and repay over and over. Installment loans are better if you need a large sum all at once, for example, to consolidate debt. The interest rate is usually fixed and it's lower than that of a HELOC. Lines of credit offer flexibility and work well when you need smaller amounts at varying intervals, for instance, to pay for college tuition each year. Your rate can vary, but you only pay interest on the amount of credit you actually use.
Debt Consolidation
Debt consolidation is a popular use for home equity loans because home equity rates are generally much lower than those of unsecured consumer debt. Even borrowers with bad credit can save money by consolidating debt, because home equity rates are still lower than rates credit card companies charge. A fixed home equity rate won't increase, unlike that of a credit card, making home equity debt easier to budget for.
Home equity has many uses--investment, starting a business, emergency cash, consolidating debt, or adding value to your home by improving it. Make the smartest home equity decision by matching the products offered to your needs.
If you need to finance education, make a home improvement, consolidate higher-cost debt, or fund an investment, a home equity loan may be the cheapest way to do it. Home equity loan interest rates are typically lower than those of almost any other kind of financing. Home equity interest may also be tax deductible--check with a tax or accounting professional.
How Does a Home Equity Loan Work?
Home equity loans allow you to exchange equity in your home for cash. Your home accrues equity in several ways:
- The down payment you made when you purchased your home
- Appreciation in home value over time
- Extra payments to reduce the principle balance
- Home Equity Line of Credit (HELOC)
- Home Equity Loan (also called a HELOAN or second mortgage)
- Cash-out Refinance
Finding the best home equity loan depends on several factors--the use for the money, your timeframe, and the amount of equity you have. A home equity loan calculator can help you determine which product is best for you. For example, you could be better off refinancing your existing mortgage and replacing it with a larger one, taking the difference in cash. If your first mortgage terms are good, though, you probably want to leave it alone and get a home equity loan instead. The calculator can tell you which option saves you the most money.
If you choose a home equity loan, it can be either a fixed amount that you pay off in installments over time, or a line of credit that you can draw on and repay over and over. Installment loans are better if you need a large sum all at once, for example, to consolidate debt. The interest rate is usually fixed and it's lower than that of a HELOC. Lines of credit offer flexibility and work well when you need smaller amounts at varying intervals, for instance, to pay for college tuition each year. Your rate can vary, but you only pay interest on the amount of credit you actually use.
Debt Consolidation
Debt consolidation is a popular use for home equity loans because home equity rates are generally much lower than those of unsecured consumer debt. Even borrowers with bad credit can save money by consolidating debt, because home equity rates are still lower than rates credit card companies charge. A fixed home equity rate won't increase, unlike that of a credit card, making home equity debt easier to budget for.
Home equity has many uses--investment, starting a business, emergency cash, consolidating debt, or adding value to your home by improving it. Make the smartest home equity decision by matching the products offered to your needs.
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