Home equity loans are unique in the sense that they can help you get excess cash against the value of your home without actually giving your home to anyone else. This option is particularly good for people with bad credit history, low-income level, or if they are of higher age.
Home equity loans have both their positive and negative aspects, but despite this, a lot of people exercise this option. If you want to avail home equity loan in the future or just curious to know more, here are some really great information bits for you:
1. They are good for tax purposes
Home Equity Loans exploded in popularity during the 1990s when there were certain deductions on consumer purchases.
Interest paid on the home equity loans are tax deductible, therefore, many tax savvy individuals tend to take the second mortgage to save tax on the interest paid on such loans.
2. Interest rate is lower than charge by credit cards
The normal interest rate charged on home equity loans is higher than your first mortgage but it is a lot lower than what you may be paying on a credit card.
You can easily calculate how much it would cost you by using online calculators for home equity loans. Using online calculators can help to do comparison shopping before deciding on which home equity loan provider to choose.
There are also reviews available online that can help you to make an informed decision on whether to go for a home equity loan or not.
3. They can be great for bad days
It is a fact that we all face financial troubles. Periods of financial insecurity often happen due to bad economic situations, job loss, or other events in our lives.
In bad days, normally people sell out their homes if they fail to pay their mortgage payments. You can easily find local, as well as national buyers of property on cash, who will be ready to buy them at a fair price. For many, it could be a good option to sell the property outright if they have alternative plans, but for many selling their home under difficult conditions may not be the option.
Home equity loans are best for such people who are in distress and do not want to sell their properties to pay for their genuine needs. Instead of selling a home, it is always a preferred choice to take a second mortgage loan on the same property by leveraging the increase in the value of your home.
4. Home equity loans are good funding sources to pay off legal liabilities
Accidents happen every day, and so do medical emergencies. Instead of engaging a lawyer to fight long cases, you can easily use the proceeds obtained from home equity loans to pay off your lawyers’ fees, and any other legal liability arising due to undesirable events.
Since home equity loans are mostly obtained by people at the later stage of their lives, and it is normally paid off when the borrower dies, therefore, most of the times such loans are used to pay for medical and other emergency expenses.
In the UK, there was also a trend where parents took home equity loans to help their kids to pay for down payment on their own first home.
5. Fixed vs Line
Home equity loans can be availed either as the fixed loans or as credit lines. Fixed loans are paid in each amount in one go and you cannot redraw it. However, in the case of a credit line, you get a sort of overdraft limit where you can draw and redraw the amounts when you desire.
Credit lines are especially good if you are willing to use home equity loans for paying the college expenses of your children, or even for your recurring medical expenses.
Featured photo credit: Guarantee Bank via gbankmo.com