Home Equity Loans

By using your equity as collateral to your loan, you can have access to a sum of money you can use for different kinds of purposes: perhaps your child needs to continue his/her studies and funds are needed, or the family might want to buy a new car, or you could use that money to consolidate your debts. As seen, there are many uses of a home equity loan; the most important thing is that you make use of that amount smartly. Ideally, when contracting a home equity loan, you should spend the money on something useful rather than just on expensive vacations or luxury items. For example, if you use it on making home improvements, that is a good investment, because this way the real value of your asset increases, so that in case you plan to sell your house in the future, you will earn extra on it. While in case you use your money just on spending without investing it, there is practically no profit for you. The most important thing you need to know about home equity loans is that everything works just as in the case of a secured debt (where your home is at risk), and until you manage to fully pay off your debt, there lies the risk for your home to be sold. That is why you must act responsibly in such cases, not to jeopardize your family’s well-being. There are advantages but also disadvantages to this type of loan too. The first disadvantage is the problem of foreclosure that may rise in case you can’t make the regular and steady payments you are supposed to; then, you should expect to pay higher interest rates, and depending on the purpose of your contracting such a loan you should be able to anticipate whether this type of loan is convenient to you or not. It is also important to mention that there is more than just one type of home equity loan you should consider: there is the fixed rate mortgage loan and the HELOC (Home Equity Lines of Credit). In the case of fixed rate mortgage there are little to no changes regarding the sum you have to repay, so all you need to do is steady, regular payments for the time of the loan. The good side of this option is that recalculations or changing interest rates all the time are not factors to hinder you, because there is a set amount with a set interest rate and that’s it. From the point of view of flexibility it is not the best option, but in case you have a regular income this is the option for you. The fixed rate mortgage loans are also known as close end home equity loans. As an other option, there is the open end home equity loan, or, as mentioned above, the HELOCs. As its very name suggests, it is credit you will be dealing with, in case you opt for it. With this type of credit, you will have access to a line of credit, usually a sum agreed to by your lender (these amounts can be as high as the real value of your home), and you can each time just borrow up the amount you need. From a procedural point of view, think about it just as the use of a credit card is; only in this case you are playing against yourself in a way, because in case you fall behind with your payments on a regular basis, there is the risk of losing your home. The good thing when using HELOC is that there is a variable interest rate involved. There is always a minimum amount of money you have to pay back, but of course never forget the interest rate. It can be said that by choosing this type of loan you are practically your own boss, you have a free hand in making your calculations, being your own financial manager and accordingly setting a monthly sum you will pay back. As long as you act wisely, advantage is on your side. Of course, you can await some extra fees such as title fees, arrangement fees, or appraisal fees, but these also might come with just any kind of loan also. In case you don’t know which type of home equity loan to choose, or which one would advantage you, seek the help of a financial counselor which may broaden your horizons and you will be able to understand debt and credit related problems better and also get valuable information regarding the best option that suits your case in particular.