Understanding Home Equity Loans
Is a home equity loan right for you?
If you’re in need of cash, a home equity loan may be your best bet; but that doesn’t mean you should always turn to home equity loans when the need for cash arises.
An Overview of Home Equity Loans
Home equity loans are loans against the equity in your home. This means that when you take out a home equity loan, the lender is putting a lien on your property. If your need for cash is for something like a mid-winter cruise, you might want to ask yourself if home equity loans are the right option.
Is It Worth the Risk?
Before considering home equity loans for your financial needs, take a look at what you plan on doing with the money and ask yourself if it’s worth the risk. What if you lose your job and you can’t afford to make the payments on your home equity loan?
When you look at home equity loans under that light, things change a bit. Taking out a home equity loan for something as frivolous as a cruise doesn’t seem like such a good idea anymore.
Many people also consider home equity loans for car purchases. However, it’s important to remember that though the monthly payment may be lower, the amount of money borrowed is amortized over a much longer period than a car loan would take to pay off. In the long run, home equity loans for car purchases may not be a good idea either.
When They Make Sense
There are times when home equity loans make sense. If you’re looking at home equity loans for home repairs or home improvements, which directly impact the value of your home, a home equity loan may still be a good idea.
If you are in serious need of cash for medical bills, a home equity loan may be your only option. In these instances, home equity loans can be very beneficial.
Different Types of Home Equity Loans
If you determine that a home equity loan is your best bet, you’ll want to understand the different types of home equity loans. Fixed rate home equity loans will assure you a set interest rate over a set period of time whereas adjustable rate home equity loans will probably see a hike in interest over the life of the loan.
Which of these home equity loans you choose will depend on your personal preferences and how comfortable you are with taking a gamble that interest rates may skyrocket.