Things don’t always go as planned when you own a home. You experienced the need for home repairs and may have other issues come up in life. That’s why one in four homeowners have a home equity loan.
Are you asking yourself, what is a home equity loan? Keep reading to learn what a home equity loan is and why it makes sense to get one.
What Is a Home Equity Loan?
A home equity loan is often referred to as a second mortgage. Instead of getting a standard loan based on your net worth, you give up some of the equity in your home for more money.
Yes, your equity will decrease, and your net worth will decrease. However, you can use your loan to make large improvements or take other life events.
This is very useful if your home’s value has gone up or mortgage rates have gone down. It can put you in a winning position and help you set up your finances for the future.
Benefits of a Home Equity Loan?
Now that you know what a home equity loan is, the question is, will it be worth it for you? Check out the benefits of home equity loans below to find out.
Easy Access to Cash
Traditional loans aren’t that easy to get. Since you aren’t offering collateral in many cases, lenders are less willing to give those loans.
The same isn’t true with a home equity loan. Yes, you will still have to prove you can repay your loan. But since you have your home as collateral in the form of a second mortgage, your lender will be more likely to approve your loan and give you the money you need.
Even modest home improvement projects may not cost a huge fortune. The chances are that you already have lines of credit available for those projects. The problem is the interest that comes with that.
While your home equity loan may not have the same interest as your regular mortgage, it won’t be nearly as much as a traditional credit card. You’ll save money in the long run due to the lower interest rates.
Saving money on interest isn’t the only financial benefit of home equity loans. Like regular mortgage interest payments, you can deduct your interest payment from your taxes.
That means you and someone taking over your loan can take advantage of these savings. Are you asking yourself, are VA loans assumable? The good news is that most are, which means most people can pass these breaks on to the next owner.
Home Equity Loans Are Worth Getting
Putting all your free cash into a home project is not always wise. Sure, it will likely improve the value of your real estate and allow you to sell for more to people wanting to buy a home. However, you don’t need to tie up more cash than necessary when you improve your house.
Now that you know what is a home equity loan, you know that you have more options. Research your options for getting extra money and apply for a loan today.
Check out the blog to find more tips that will help you when you sell or buy a house.