Interest rates are predicted to rise in 2018, with the Federal Reserve raising its key interest rate. With the current low levels of interest, it may be a good idea to take advantage of your home equity and borrow against it in order to save more money or pay down on your mortgage faster.
What is a Home Equity Loan?
Home equity loans are beneficial because they can be used to buy a home, pay off debt, or make improvements and renovations. When taking a home equity loan, there is no need for a down payment. As long as the value of your home exceeds the amount you borrow plus interest, you will not be required to pay an upfront fee that would otherwise be associated with other loans.
Home equity loan is a loan you can use to finance the purchase of your home or improve its value. If your home is worth more than your mortgage, then a home equity loan is a way for you to acquire additional loans without the hassles, headaches and fees of a traditional loan.
Pros and Cons of Home Equity Loans
The pros of a home equity loan are the rate. Rates for home equity loans are typically lower than those of cash out refinances. The downside is that it can take 1-2 weeks to pull together all the documentation necessary for the loan application.
Home equity loans are typically used to consolidate debt or as a last ditch effort to lower monthly payments by taking out funds from your home. They are an option for those who have plenty of equity in their homes, which is why it’s important to qualify for them in the first place. While you may be able to take out a loan with better terms and rates, the interest on the loan will likely outweigh any benefits.
5 Reasons why You Should Consider a Home Equity Loan
If you’re looking for more flexibility in your financial plan, a home equity loan is an excellent alternative to a cash out refinance. A home equity loan lets you borrow against your home’s current value, which means that you can use the money as soon as you need it or take it to invest in a different property. Cash out refinances are typically costlier and are often limited to refinancing your next house.
1. Higher monthly payments with a home equity loan: Cash out refinances are typically for lower monthly payments but this is not always the case. Keep in mind that you’ll be making your mortgage payment for an extended period of time and also consider tax benefits as well.
2. A fixed interest rate with a home equity loan: The interest rate on a home equity loan will remain stable over the life of your loan and won’t fluctuate like cash out refinancing can.
3. Lower closing costs with a home equity loan: Home refinancing normally comes with higher closing costs which may equate to thousands of dollars in savings over the lifetime of your loan.
4. Better rates of return on investment with a home
Steps to Taking out a Home Equity Loan
If your home is worth more than the balance of your loan, a home equity loan could be an option for you. There are many advantages to choosing a home equity loan over a cash out refinance, including a lower interest rate, quicker loan approval process, and more flexible terms.
Before you decide whether to take out a home equity loan or refinancing your mortgage, it is important for you to evaluate the time and cost involved. The time it will take to take out the loan depends on how much of the balance you would like to pay down. A cash out refinancing will likely require a fee from your bank and you may need to wait up to three weeks before they can process the paperwork.
Conclusions
Since refinancing your home is a popular financial move, it’s important to understand the differences between one option and the other. With a cash-out refinance, you pay the difference in interest rates between what your lender offers and what their current rate is. The most common return with this option is 4-6%. However, if you choose to use a home equity loan instead, you’ll get a fixed rate that will never change.
The home equity loan product can be a great option for refinancing your debt by providing additional liquidity and lowering the interest rates. However, before you take on this type of product, you must make sure you understand the implications of its use.