Home equity loans are kind of second mortgage loan. Money is borrowed in case of a home equity loan against the worth of the borrower’s house. There are obvious risks associated with such a credit product. When undertaken wisely, home equity loans can be quite useful and they can help you at times of financial needs.
They have become, in the present context, an acceptable option to get that extra money for your immediate and important need to be met.
Home equity loans are very much in the news and homeowners are bombarded every day with offers for this kind of products from leading companies.
Like everything in the world, home equity loans have their pros and cons.
A proper analysis of the positive and negative characteristics of equity loans would help us understand whether such a loan is feasible for a particular individual. Such investigation would also enable us to explore the salient features of home equity loan.
Pros and cons: Evaluate before picking one
The home equity loans are sometimes considered the best option for the following reasons:
- Home equity loans have low-interest rates and can, therefore, be utilized to pay off credit card debts as credit card interest rates are higher than equity finance interests and one can safely flee building up interest demand by subscribing to home equity loans.
- Loan up to 125% of the value of the house can be obtained.
- There is a long repayment period of 15 to 30 years.
- It is easily available.
The easy availability of home equity loans makes them a very inviting option for someone who wishes to tame growing credit card interest as well as get his immediate needs met, for example, to finance the higher education of a son or daughter.
Marriage expenses are met, new cars are purchased and all the growing demands of a modern lifestyle are also met by utilizing the benefits of home equity loans.
However, there is also a negative side of home equity loans.
- The worst feature of the home equity loans is that if it goes unpaid you lose your home!
- The easy availability of the home equity loans creates the propensity to avail it for the satisfaction of greed rather than want.
- Due to the long period of repayment of home equity loans, the borrower might be still in debt when retirement age approaches. This makes for an insecure old age.
Equity finances shaped for your needs
Home equity loans are available in different flexible formats. One needs to measure one’s requirements carefully before making the choice. One variant of the home equity loans is the closed end loan or which resembles a term loan. This is a fixed amount of loan that can be repaid within a fixed time period.
This kind of home equity loans must be availed when one avails the loan to finance some activity about the expenses of which one has surety and planning.
The other variety is the line of credit. This functions more like a credit card in that the amount of money is withdrawn by the borrower according to his need.
The borrower can borrow much more, up to 125% of the value of the property. So the interest charged also goes down or up accordingly and on the same principal loans can be availed repeatedly.
Such loans are usually taken for completion of projects which are executed in phases. For example construction of houses and annual tuition can be financed by such a kind of equity loan.
The right choice in home equity financing
It is very important to make a thorough analysis of one’s financial position before availing of the home equity loans.
The burden of EMI should not be so much as to prevent oneself from leading a decent life because in that case default is possible and the sad event of being homeless may materialize.
Once these things are taken care of the home equity loans are a great option for debt consolidation. Home equity loans also serve as tax shelter as according to the federal law, a home equity loans are deductible from income tax to a sum of $100,000.