Everything You Need to Know About A Home Equity Loan
What is a Home Equity Loan?
A home equity loan (HEL) lets you borrow a fixed amount, secured by the equity in your home, and receive your money in one lump sum. Most of the time, home equity loans have a fixed term, a fixed monthly payment, and fixed interest rate. Interest on a home equity loan may be 100% tax deductible. Please consult your tax advisor to see if you qualify.
Who is Eligible?
Doesn’t matter whether you choose a home equity loan or an HELOC, if you have a good credit score, you’ll qualify for the best rates and biggest loans.
And with property values rising across much of the country, only about 1 in 10 homeowners with a mortgage remains underwater, owing more on their loans than their property is worth.
That means if you didn’t qualify for a second mortgage due to not having enough equity in your home, then have a better chance of being approved.
Lenders require that borrowers preserve 10% to 20% of their equity after taking into account the loan and line of credit.
Benefits Of A Home Equity Loan?
There are several noteworthy benefits to a home equity loan compared to other loans but we’ll be discussing only the main ones. Which are:
Lower interest rates: As compared to credit card APRs, home equity loans typically have much lower interest rates. Loans similar to these are considered to be “secured” by the collateral of your home, so have more confidence and trust in your ability to pay your debt. Lower risk correlates to lower rates.
Potential tax deduction: 100% of your home equity loan interest payments may be tax deductible, credit card debt may not have the same case but it is still best to consult your tax advisor to see if you qualify.
Cash payment: A home equity loan provides a lump sum of money unlike lines of credit. This allows you to knock out medical bills, contractor costs or other major expenses with one check.