The Benefits of a Home Equity Loan
When homeowners are looking for a means to borrow money, a home equity loan can be a great option. But what are the benefits of a home equity loan over other forms of borrowing? There are many, and this is evident in the number of homeowners that continue to use them when they need money the most.
One of the biggest benefits of a home equity loan is that for homeowners that have existing equity in their home, they can be very easy to qualify for. The amount of equity is determined by subtracting the amount currently still on the mortgage from the total value of the home. Most lenders will only look at the amount of this equity, not taking into consideration things like income or credit score – two things that will definitely need to meet certain requirements when applying for other types of loans. But with a home equity loan, the more equity you have the more you’ll be able to borrow. It really is as simple as that.
Still, what makes a home equity loan better than a personal loan or an unsecured line of credit? The biggest benefit home equity loans have over these other forms of borrowing is that they are generally offered at a much, much lower interest rate. While credit cards can carry interest rates as high as 18%, if you apply for your home equity loan at a time when the interest rates are just right, you could get a rate as low as 5%, or even less, on your home equity loan. When the cost savings are calculated, it’s easy to see this benefit of a home equity loan.
The fact that the interest rates are so much lower on home equity loans over other loans also makes for a huge opportunity in debt consolidation – and that’s another huge benefit of home equity loans. When homeowners take out a home equity loan, they can use that lump sum payment to pay off all of their higher interest loans such as student loans, credit card loans, and personal loans. They will no longer have that debt, and their new debt can be paid off at a much lower interest rate, and with much more savings in their bank.
Another benefit home equity loans hold over these other forms of borrowing, especially in the case of credit cards, is that they can provide the homeowner with a large amount of money at one time; and this can often be just what the homeowner needs in order to get out of a tight financial spot. Working much like a first mortgage, home equity loans can give homeowners the money when they need it, and then be paid off monthly through a fixed monthly payment. Home equity loans come with only fixed rates attached to them and so, this allows the homeowner to budget for the same amount to be repaid every month.
When homeowners need to borrow money, there are many benefits of a home equity loan. Speaking to a mortgage broker can help individuals get the loan that’s best for them, and will help them realize all the benefits of these loans.
Bryan J is the author of this article. For more information about home equity or private mortgage lenders please visit canadianmortgagesinc.ca.
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