If you’ve been involved in the housing market over the past few years, you’re likely aware that home prices have been on the rise. A recent article in the Washington Post predicts that this trend is set to continue in 2018.
This indicates that many homeowners may be sitting on significant wealth, more than they realize, which brings good news for potential sellers. Home equity loans also present a viable option for many homeowners needing additional resources.
Commonly, homeowners opt for a home equity loan for needs such as home upgrades, repairs, or maintenance. However, there are several other purposes for it that homeowners might not be aware of.
For example, it could fund a college education for their children or assist in consolidating their multiple debts into just one manageable monthly repayment. If debt consolidation is your aim, a home equity loan is worth considering. LendingTree can help you compare offers to find the best loan and rates for your needs.
UNDERSTANDING A HOME EQUITY LOAN
There are two types of home loans you can consider. The first is a traditional home equity loan, which provides the homeowner with funds to be used for a specific purpose. Then there’s a home equity line of credit (HELOC), which has a more flexible tenure, generally 10 years.
HELOC loans offer flexibility as they don’t require you to spend all the money at once. Instead, you can use it bit by bit. Given that your home is the collateral for the loan, it often comes with lower interest rates than other forms of credit. Interestingly, you only need to pay interest on your borrowed amount.
Also, the interest paid on a HELOC loan can be deducted from your taxes, depending on how you spend the money. For example, if it’s utilized on home improvements, you can expect more tax deductions.
USES OF A HOME EQUITY LOAN
A common misconception is that a home equity loan is only for home improvement. However, if your credit score is good, you can use it to finance virtually anything. And with the global growth of online loans courtesy of sites like Simple Payday, it’s clear that people are increasingly turning to short-term credit solutions.
The tax deductions available on at least some of the interest make it an appealing financial tool when needed. Also, HELOC offers remarkable flexibility for expenses without a fixed cost.
FINANCING A COLLEGE EDUCATION
Pay for your own or your child’s college education by taking advantage of the relatively lower interest rates compared to student or personal loans. And while the tax deduction limit for student loan interest is $2500, a home equity loan offers a much higher cap.
OVERCOMING MEDICAL EXPENSES
With skyrocketing health insurance rates and increasing deductibles, financing healthcare has become a challenge for many. A home equity loan can help here too, as you can deduct a larger percentage and even negotiate lower medical bills when you pay upfront.
CONSOLIDATING DEBT
For those dealing with high-interest debts like credit cards, a home equity loan could be an efficient way to consolidate and repay it sooner. LendingTree can help you compare rates and terms to find an attractive rate, which can save you significant amounts of money. Note that unlike credit card debt, the interest on your HELOC or home equity loan is tax-deductible.
ACCESSING YOUR HOME’S EQUITY
With a suitable property and a good credit score, you can secure a home equity loan or HELOC. The appraisal for a home equity loan will use the most current home value since many home values have appreciated since the last appraisal.
This essentially means that you can borrow a larger sum of money from your loan, which can be used to fund a variety of things, from college, medical bills, to home renovations. Many are unaware of this hidden value in their homes and the benefits it can bring. Leverage this financial tool to improve your quality of life.
