Today, a growing number of homeowners are tapping into the equity in their home through home equity loans. Home equity loans allow you to turn your equity into cash to pay debt, pay for college, take a dream vacation, or anything else. In many ways, these loans are almost identical to a second mortgage on your home, except you receive the cash in hand to use as you wish. In any case, it’s important to understand the pros and cons of a home equity loan before you decide to go forward. The following information explains a few of the pros and cons of a home equity loan.
On one hand, home equity loans offer homeowners a source of cash to remedy a variety of situations.
- Emergency Funds
One of the top benefits of a home equity loan is you can use the money for just about anything you desire. For example, if you have an unexpected emergency that calls for a quick infusion of cash, a home equity loan can be used to meet these new needs.
- More Lax Requirements
Another benefit of home equity loans are they have more lax standards for approval. There are undoubtedly other sources for emergency funds, such as a personal loans. However, home equity loans are secured loans, which means your chances of being approved are higher.
- Lower Form Debt
Many people choose to pay down credit cards and other high interest rate debts with home equity loans. Because a home equity loan is secured with your home, the interest rates are typically lower than you would pay on credit cards or even auto loans.
- Set Payments
While home equity lines of credit typically have flexible repayments based on the interest rate, home equity loans have set payments. Home equity loans are not influenced by interest rates.
Just as there are two sides to every coin, there are disadvantages to using home equity loans.
- Possibility of Losing Your Home
The biggest disadvantage to getting a home equity loan is the real possibility of losing your home. When you get a home equity loan, you are indeed putting your home up as collateral. In the event you are unable to make the scheduled payments, you could lose your home. In any case, the majority of lending institutions are not as concerned with your ability to repay the loan. As a result, it’s important for you to understand and be able to adhere to the payment schedule.
- Set Interest Rate
In the event the interest rates decrease, your home equity loan payment will be locked in for the higher interest rate stated on the promissory note. However, if you had a home equity line of credit with fluctuating interest rates, your interest rate would decrease and so would your payments. This is only a disadvantage for home equity loans in environments of decreasing interest rates. If interest rates increase, this would become an advantage because your payments would remain the same.
In any case, the pros and cons of a home equity loan can change from person to person. It’s very important for each individual to carefully consider and balance both sides of the coin before applying for a home equity loan. However, when the pros and cons are effectively balanced, a home equity loan can help you achieve your short- and long-term goals. If you are considering a home equity loan, contact Fast Access Finance to complete an application or for more information.