Mischer - Planned Communities, Residential and Commercial Developer

Is a Home Equity Loan Right for You?

home, equity, loan, realty

If you are considering a home improvement, retirement, sending a child off to college, or any other unexpected expenses, you may want to consider a home equity loan.

A home equity loan is basically borrowing against the equity you’ve already paid into your home. Generally a borrower can request a loan in any amount up to 80 percent of their equity. Just like your existing mortgage, you will incur a fixed or variable interest rate, and in some cases, fees and closing costs.

The Pros of a Home Equity Loan

Home equity loan interest is tax deductible up to $100,000 and often the money can be borrowed at a lower interest than conventional loans or credit cards. Also, if you have tremendous card debt AND the interest on a home equity loan is less than what the credit cards are charging AND you have exhausted all efforts to negotiate a lower rate with them, then you may want to consider using your home equity to pay it off.

The Cons of a Home Equity Loan

Since home values can fluctuate based on many factors, including the economy, in the event your home’s value was to decrease, the loan amount you borrowed will remain the same. In addition, if you miss too many payments, you can be at risk of foreclosure, even if you have made all of the payments on your primary mortgage on time. Often people end up using the equity loan to compensate for daily or luxury expenses and not for value-added improvements that can be recouped when they decide to sell their home.

The absolute best way to use a home equity loan is for a value-added home or family improvement such as a kitchen or bath remodel, a major repair, or higher education expenses. Be smart - make a plan for the funds before you apply and take out only the amount you absolutely need!