Home Equity Loan

Learn everything you need to know about home equity loans (HEL) and the pros and cons that accompany them. Start New Financial helps you become debt free.

A HEL is capped off by the home’s equity, but everything else is negotiable

HEL

A home equity loan (HEL) is a second-mortgage type of loan for a set amount of money secured by your home equity. Like an original mortgage, the loan is repaid over a fixed term with equal monthly payments. Defaulting spells foreclosure.

Tax Benefits

You borrow as much as your equity covers and likely pay less interest on it than on a personal loan. If you use the HEL to build, substantially improve, or to buy your home, you can claim a tax deduction for interest you pay on it.

Loan Fees

Ask about all HEL/loan fees, including application/loan processing fee, origination / underwriting fee, lender / funding fee, document preparation/recording fees, broker and appraisal fees; they might be called interest rate add-on or points.

Haggle

When loan hunting, negotiate with many lenders to make everyone compete for your business by letting them know you?re shopping for the best deal. Ask each lender to lower the interest rate, points, or fees, and to beat the others? terms.

What?s A Home Equity Loan?

A Home Equity Loan (HEL), also known as a home equity installment loan or a second mortgage, is a type of consumer debt that is in the form of a loan in which you use the equity in your home as collateral. Yes, home equity loans allow homeowners to borrow against the equity in their residence. The loan is determined by the difference between the mortgage balance due on the house and the house’s current market value. You can borrow up to 85% of the value of your home minus the balance of the mortgage. There’s typically a fixed interest rate on home equity loans, so the payment remains the same every month; factoring them into your budget is made easier by that. There are two varieties of home equity loans – you have the fixed-rate lump-sum loans and then you have the revolving lines of credit of home equity lines of credit (HELOCs). Never forget, though, that in addition to your usual mortgage payment you’ll have to make your home equity loan payment.

A home equity loan is a good source of money for one-time expenses and major projects since it’s a windfall of a lump-sum equity draw.

The overall tax expense liability is lowered since the home equity loan is removed from the taxable income because it may be tax deductible. You can easily get a large sum of cash money quickly with a home equity loan; it typically comes with a fixed rate of interest that is lower than other loans and its monthly payments are set for a period and won?t change.

Before you apply for a home equity loan, make sure to choose wisely. If you are making risky financial decisions you shouldn’t consider a home equity loan. If you fail to repay the debt, you risk losing your home to the creditor or lender because it is a secured loan secured by your house value. If you take up a second loan to pay off the first, you might sink even deeper into debt even though it is an easy way to get a student loan or to get money to pay off other loans. If you are nearing retirement, you should reconsider the option of tapping into home equity loans for child education even though it is a good reason, because you may not have a way to repay the debt later on. If it’s worth more than the net worth of your house, the home equity loan leaves you with a very high chance of facing bankruptcy. You must opt out of a home equity loan where the chances of success are moderate on a business you are starting.

Advantages Of Home Equity Loan

The overall tax expense liability is lowered since the home equity loan is removed from the taxable income because it may be tax deductible. You can easily get a large sum of cash money quickly with a home equity loan; it typically comes with a fixed rate of interest that is lower than other loans and its monthly payments are set for a period and won?t change.

Disadvantages of Home Equity Loan

Before you apply for a home equity loan, make sure to choose wisely. If you are making risky financial decisions you shouldn?t consider a home equity loan. If you fail to repay the debt, you risk losing your home to the creditor or lender because it is a secured loan secured by your house value. If you take up a second loan to pay off the first, you might sink even deeper into debt even though it is an easy way to get a student loan or to get money to pay off other loans. If you are nearing retirement, you should reconsider the option of tapping into home equity loans for child education even though it is a good reason, because you may not have a way to repay the debt later on. If it?s worth more than the net worth of your house, the home equity loan leaves you with a very high chance of facing bankruptcy. You must opt out of a home equity loan where the chances of success are moderate on a business you are starting.

Con: The bad thing about a home equity loan is that, if property values in your area were to decline, tapping all the equity in your home all in one shot can work against you.?

IT?S NOT ALWAYS A GOOD IDEA TO GET A HOME EQUITY LOAN TO GET RID OF BAD DEBT

WHAT WE SUGGEST

Speak to our ready experts who would love to help you understand the best option. Ready experts will give you a free consultation and in depth review of your available options. Also advise you of other means besides borrowing a home equity loan and help you exercise alternative options.

Which do you believe works better for you?

The first thing you must do, before deciding whether to apply for a home equity loan or a HELOC, is to calculate how much money you really need and how you plan to use it. As you weigh your options, don’t neglect to account for fees, interest rate’s, tax advantages, and monthly payments.

It can be a powerful financial benefit for you to use the equity in your home before selling. Always be sure to remember that you’re using your home as collateral. Whether you choose a home equity loan or line of credit, you have to avoid the following risk: With what may eventually amount to a long-term loan, you must resist funding short-term needs.

Upon thoroughly evaluating your unique situation, we’ll tell you what’s best for you

Your main goal is to finally become debt-free, so first you need to do everything possible to steer clear of more debt. You also want to try not to risk losing your house to pay for unsecured debts.

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