Need cash for home improvements or other life events? Take advantage of all that a home equity loan can offer.
By cashing into the equity you’ve built up in your home, you can handle whatever life throws at you.
If you are looking to make home improvements or simply have major life expenses headed your way, it’s nice to know your options.
Home equity loans are popular options for homeowners looking to pay for a college tuition bill, a dream wedding, or home improvements that will increase the value of their home. Homesite Mortgage has helped tons of homeowners through this process in order that they can achieve their goals.
What is a Home Equity Loan?
A home equity loan is a loan that you take out based on the equity you’ve built up in your home. As you pay for more and more of your home (through mortgage payments), the more equity you build up in your home. A home equity loan converts the equity you’ve built up into cash. It’s essentially a second mortgage on your home, because your original mortgage isn’t changed, and you’ll continue to make the same payments toward it each month.
Advantages of a Home Equity Loan
Home Equity Loans Offer Lower Interest Rates than Personal Loans
If you are looking for a loan, but don’t want to take on the high interest rates that come with personal loans or credit cards, home equity loans are a great alternative. Because your loan is secured through the collateral of your home, lenders have more confidence in your ability to repay the loan. Due to the higher confidence (and lower risk), you can receive a lower interest rate compared to a regular loan for personal use.
Home Equity Loans are Tax Deductible
Home equity loans are a great opportunity to lower your annual taxes. In most cases, 100% of the interest paid on home equity loans is tax deductible—unlike many other forms of debt. Speak with you tax preparer to know if a tax deduction through your home equity loan is available.
Cash Pay-Out of Home Equity Loans
A large appeal of home equity loans is that you receive a lump sum of money after qualifying for the loan. This means that if you need a set amount of money to do a kitchen remodel, the cash is all available to complete what needs to be done, and you can start making payments on the loan right away. If it’s too big of a risk to dip into savings for a large sum of money, and if the money is for a singular event (paying for a home improvement vs. paying for college over the course of four years), home equity loans are a great choice.
Stability of a Home Equity Loan
One of the many appealing features of home equity loans is their stability. When you qualify for a home equity loan, the entire sum of the loan is available for you to use, and you’ll repay it at a fixed-interest rate. With a fixed-interest rate on a home equity loan, you can easily know what to budget for each month, because the payment amount will remain the same. This is one of the biggest advantages of home equity loans over home equity lines of credit.
Home Equity Loan FAQs
Do closing costs come with a home equity loan?
Home equity loans traditionally come with closing costs totaling 2–5% of the loan. Be sure to shop around for home equity loans, so you can get the best deal for not just the loan itself, but also the closing costs.
How much money can I borrow for my home equity loan?
The amount of money you can borrow for your home equity loan is determined by the amount of equity you’ve built up in your home, and your debt-to-income ratio. The more money you have already repaid on your mortgage, the more equity you can tap into for a loan. Your debt-to-income ratio is determined by how many bills and other debts you have in comparison to your income.
What’s the difference between a home equity loan and a home equity line of credit ?
While their names are similar, a home equity loan and a home equity line of credit (HELOC) have key differences. A home equity loan offers a fixed interest rate, while a HELOC involves varying rates, depending on when you draw cash from the line of credit.
A home equity loan comes in the form of a lump sum of cash. A HELOC on the other hand, is an extended line of credit that you can draw from over a long-term period. A HELOC typically comes at a higher interest rate than home equity loans, but you only pay interest on the amount of money you have drawn from the line of credit. Additionally, with a HELOC, it’s more challenging to fit the payments into a monthly budget because the amount depends on how much you’ve drawn, and the current interest rate (which varies).
How long does it take to apply for a home equity loan?
Depending on the complexity of the home equity loan, a typical timeframe for a home equity loan (from applying–closing) is two to four weeks. During those weeks, an underwriter will evaluate your financial history and make a decision.
Have a question or want to talk with a lender?