Leverage Your Home’s Value with
Home Equity Loans
Home equity loans allow you to take an additional mortgage out on your house by tapping into some of the equity that has built up since you first purchased it. The money can help start a business, pay for college, make home improvements, or consolidate debt.
There are two kinds of home equity loans. A regular Home Equity Loan provides a lump-sum payment and usually has a fixed interest rate over the loan’s life. A Home Equity Line of Credit (HELOC) works like a credit card, where you have a balance and an available credit line that is based on how you spend it and how fast you pay it back. This type usually has a variable interest rate, which can change on a monthly basis.
Advantages and Disadvantages of Home Equity Loans
The advantages include the ability to take out a substantial amount of cash, a lower interest rate from that of a credit card, and the ability to deduct the interest from your taxes. Closing costs are usually less or non-existent.
Disadvantages of home equity loans include the possibility that a mortgage company will require that you first pay off certain outstanding debts before they give you the rest of the proceeds. Interest rates tend to be higher than on your first mortgage. Some home equity loans come with a prepayment penalty, which charges you a fee if you pay the loan off before the end date. Be careful to not take home equity loans that cause you to owe more than the house is worth.
April 24, 2006