The DL on HEL

Posted September 26th, 2018

If you’ve been thinking about taking out a home equity loan, now is the time! Rates are going to be rising in the coming months. Be sure to get in and get approved while the rates are still low!

Aren’t sure what a home equity loan is or if it’s for you? We got you covered.

A home equity loan is a way to borrow money from the equity you have accumulated in your house. But let’s back up. First, what’s home equity? If you subtract the amount you’ve paid on your house from the value of your house, you get your equity. This grows as you pay your loan balance. It can also grow if your property value increases. So a home equity loan borrows money from that ownership you’ve built.

Now, as far as the actual loan goes, there are two options: home equity loan and home equity line of credit (HELOC). A home equity loan is a one-time lump sum of money that is paid off over a set time. A HELOC is more similar to a credit card. You have a certain amount you can borrow and you take it as needed.  

Both home equity loans and HELOCs are frequently used for a variety of reasons. The most common is for home improvements. Not only is it an easy way to fund those improvements, but it could increase the value of your home, which would increase your equity as well.

You may also want to consider a home equity loan to pay for college, especially if the interest rate is lower than student loan rates. This can be tricky though because you’ve got a lot on the line (your house!). However, once graduated, your income will most likely increase, which would help repayment. It's also common for parents to use this type of loan to pay for their children's college. 

Debt consolidation is another typical use of home equity loans. These loans typically have a lower interest rate, so consolidating other loans (like a car loan or student loans) can make sense. Experts warn to be careful though. If you go into debt to pay off debt then rack up more debt – it will be tough to get out.

Last, some people use a home equity loan to make a large purchase, like a vehicle, boat, or vacation. Most experts warn to avoid using this type of loan for luxury items. You would be putting your home at risk for something that does not produce a concrete, positive outcome (like building more equity with home improvements or increasing your salary with a college degree). While this is most certainly an option, it’s not always the best way to fund a luxury item.

So what do you think? Is a home equity loan just what you’re looking for? If it is, or if you still aren’t sure, give us a call! Our Rockstar mortgage team can hook you up. 

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