If you are considering taking out a loan, you may be wondering if a home equity loan (HEL) is right for you. Home equity loans are a type of second mortgage that allows you to borrow money using the value of your home as collateral. Here are four reasons why you might consider a home equity loan.
1) You want a low interest rate
Fortunately, the benefits of a home equity loan don’t reside solely on the side of the lender. Banks and other financial institutions giving out loans prefer to do so in a way that guarantees them the surest return, so they offer lower interest rates for HELs compared to many other loan types.
This low interest rate can be beneficial to you if you have high-interest debt on your credit card. According to Erik Carter, contributor to Forbes, “refinancing high-interest credit card debt with a home equity loan or line of credit can make sense, since your interest rate could be much lower and tax deductible.”
2) You want to borrow a large sum
You may need to borrow against the value of their home in order to receive a large sum of money. If you are in a situation where you want to borrow a lot, such as to start a new business, a HEL could be a great option for you.
3) You need a lump sum
The main difference between a home equity credit line and a loan is that a loan is distributed in a lump sum with set monthly payments, while a credit line allows you to draw funds from a set limit depending on varying monthly needs, like a credit card. If you need your money all at once, like to purchase a car, a loan can be a better choice than a credit line or a credit card.
4) You can get a tax deduction
Another potential benefit of a home equity loan: the interest you pay can be tax deductible. Your tax advisor can help you determine if this is a possibility.
If a home equity loan sounds like a good option for you, or if you have questions about these great benefits, please give us a call.
Filed under: Loans
