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Home Equity Loans can be a great financial tool when used properly. If you’re not familiar with this type of loan, it is essentially a loan where the borrower uses the equity in his or her home as collateral. The difference between what your home is appraised at and what you owe on the mortgage determines the amount of equity you have in your home. For example, if your home is appraised at $200,000, but you owe $170,000 on your home loan, your total equity would be $30,000. A portion of this equity could potentially be used to cover the costs on various big purchases.
When considering taking out a home equity loan, take into account the value of the intended purchase. Good uses might include home renovations, consolidating high-rate debt, or even education expenses. Some home renovations can actually add value to your home, such as a bathroom or kitchen remodel. So, while you might be borrowing against your equity, you will also be simultaneously increasing the equity in your home. Home Equity Loans also tend to offer much lower interest rates than other loans. By consolidating debt into a Home Equity Loan, you may be saving a lot of money in the long run. However, it’s important not to take out any additional unsecured debt as this is likely what created the debt in the first place. Utilizing the loan for education expenses may also have long-term value. The hope with most education expenses is that you’ll ultimately have a higher paying job as a result. If the education expenses are for your child and could delay your own retirement, you may want to consider talking with a financial advisor first.
If you’re thinking about opening a home equity loan, you have a couple of options. FORUM offers fixed rate home equity loans and interest only lines of credit (HELOC). Both have benefits depending on your specific situation. A fixed rate loan offers you predictable monthly payments and a line of credit loan allows you to make low interest only payments. For more information on FORUM’s Home Equity Loans, click here. To find out how much you can borrow, try out a free online calculator.
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