Everyone wants to know the answer to the same question. So how much can I get? How much you can borrow is directly related to your equity which is simply estimated by subtracting the outstanding balance you owe on the home from the current market value. Equity simply refers to the cash value that has grown in your home while you have been making your monthly payments over time. Equity loans enable homeowners to borrow money against their home’s calculated value.
At the same time as home equity loans are a great approach to free up extra cash which is tied up in your home, borrowers must be fully aware that they are using their home as collateral. If a situation arises and their loan obligations aren’t met, they could lose their home. Historically, home equity loans were strictly used for home repairs that would increase the value of your home. Nonetheless, these loans have become a feasible selection for large, non-home improvement related purchases or even for consolidating outstanding debts into one monthly payment at an affordable interest rate.
These loans, secured by real estate, are generally considered safer by lenders. Because of this your interest rates are likely lower than credit card rates or consumer loans. In addition, regardless of the rate, the interest on debt secured by the mortgage or lien on your personal residence is commonly tax-deductible. Please consult your accountant for more detailed information.
Equity loans are great in that they use the collateral of your home to secure the loan, helping you to get a better rate out of the deal and make smaller payments than you would to a credit card or even on a personal loan. Home equity loans can be used for consolidating consumer debt or covering a large expense such as a wedding, college tuition, or home renovations to your existing home. Home equity loans are desirable to borrowers because they oftentimes have a lower interest rate, they are easier to qualify for even if you have bad credit and payments on a home equity loan may be tax deductible.
Even if most lenders feel comfortable with home equity lending, and may be more liberal because they view home equity loans as comparatively safe, it’s still a loan. Lenders consider many factors such as your credit history, ability to repay the loan, and your homes equity (noted above) when making a decision on how much money to lend. Home equity lending, often referred to as a second mortgage or borrowing against your existing home, can open up a lot of avenues as a funding source for a current homeowner.
Because they normally have a lower interest rate, are easier to qualify for (even with weak credit) and the interest may be tax deductible, home equity loans are a great alternative for individuals. Home equity loans are, when all’s said and done, fixed rate home loans that allow you to take advantage of the money you’ve already invested in your home to finance larger debts at a typically lower interest rate than most revolving credit choices.
Home equity loans are a great option if you are sure of your ability to pay them off. Like anything else however, buyer beware. Hidden fees and confusing rate calculations can make a bad situation get even worse. Less reputable lenders frequently target people in vulnerable circumstances with troubled credit by proposing what appears to be an easy way out.