Using Home Equity For Borrowing Needs
In today’s consumer market, it’s easy to obtain various
types of credit to buy all sorts of products. The question is
are you paying too much for all this credit, particularly credit
cards. Are your debts manageable? Are you thinking of applying
for a big loan to finance your child’s college tuition or
for a kitchen project? As you can see, there are potentially a
lot of debt issues that needs to be addressed. Instead of dealing
with each matter individually, using your home equity could solve
your financial borrowing requirements in one swoop.
What is Home Equity?
Home equity is the difference between the appraised value of the
property and the current mortgage balance outstanding left on
the home. By tapping into their home equity for a loan, homeowners
get access to attractive borrowing rates and tax savings. Because
the loan is secured by the equity of the home, the loan interest
is tax deductible. The proceeds from a home equity borrowing are
to be used at your discretion. Popular uses include debt consolidation,
home renovations, furniture buying and in emergency cases, medical
Apply for a Home
The Home Equity Loan And The Home Equity Line Of Credit
There are two ways to draw into your home equity depending on your
Home Equity Loan: A home equity loan is also referred
to as a second mortgage or a home equity mortgage. Home equity
loans are a one time loan that is set up by tapping into the equity
of the borrower’s home. A home equity loan is set up like
a fixed rate mortgage, using the equity of the home as collateral.
The monthly payments, the home equity loan rate and the term are
fixed for the duration.
Home equity loans are suited for those looking to make a major
purchase (A car, appliances, college tuition and home renovation
projects) and intend to lock in an interest rate over a specific
period of time.
Home Equity Line Of Credit (HELOC): A home equity
line of credit is just that, a line of credit. Once the HELOC
is set up, the borrower can draw on the home equity line as needed.
Monthly payments depend on the interest rate charged for that
particular month and the amount drawn against the home equity
Home equity lines of credit are ideal for situations such as paying
off high interest debt such as credit cards, college tuition or
unexpected medical expenses. It is essentially a home loan equity
refinancing of debts.
Whether it’s home equity loans or a home equity line of credit,
it’s a cheap flexible way of borrowing. Because these home
loans are using the equity of your home as collateral, there is
a risk of losing your home to foreclosure if you don’t make
the required home equity borrowing payments. Financial discipline
and caution needs to be exercised. It’s makes good financial
sense to use a home equity loan to pay off your more expensive
credit card debts as long as you don’t plan to use them.
If you do run up credit card balances again, you could end up
with more debt than you can manage