If you have financial goals that seem far out of reach, a home equity loan might be the way to help you get there. Whether you want to consolidate debt, build a deck, help your kids pay for college or take a long overdue vacation, a home equity loan may give you the flexibility you need.
What is a Home Equity Loan?
Home equity loans are the value of a house, minus what the borrower still owes on it. The value of the house is being used as collateral for the loan. So, if the house is worth more than what the borrower owes on it, he/she will likely qualify for a loan. It is wise for the borrower to not take out more than he/she can repay, because defaulting on the loan can put them at risk of foreclosure.
Why Would You Want a Home Equity Loan?
Because the loan has the value of the house as collateral, it is less risky for a financial institution. This helps out the borrower because the loan will have lower interest rates compared to unsecured personal loans or credit cards.
This security also allows for higher borrowing amounts, which may be the only option for funding big expenses, such as larger home improvement projects or higher education.
Another benefit is that many people are able to deduct some of the interest that is paid on a home equity loan on their taxes, particularly if the loan is going towards significant home improvements.
Different Types of Home Equity Loans
It is possible to take out a home equity loan or a home equity line of credit (HELOC). The home equity loan is a lump sum loan. In this case, the borrower will get a lump sum of money and repay the loan over time with a monthly payment.
A HELOC is a little different. After a borrower starts to repay the original amount on the loan, they receive additional credit—much like a credit card. This way, a borrower is able to take out money as they go, and only take out what they need, borrowing multiple times, if necessary.
Home equity loans can be a great option for many situations in life. If you have other questions, don’t hesitate to contact us. MMFCU prides itself on our multiple options! We encourage you to compare us!