Not the loan for emergencies or if you need funds fast, in other words. It’s somewhat less lengthy and expensive than the first time ‘round, but even so, it can take a month at least. Long application: A home equity loan is essentially a second mortgage - and applying for one means going through a similar process: much paperwork to collect and file, a home appraisal to schedule, closing costs to pay. You must itemize deductions on your tax return. If you use the home equity loan to upgrade, buy or repair your home, the interest on it is often tax-deductible (up to a certain amount of debt). Tax advantages: You might be able to deduct the annual interest you pay on your home equity loan, just as you can on your primary mortgage. More funds: Since the amount you can borrow is based on your equity stake in your home - probably your single biggest asset-you might qualify for larger sums than you could with a personal loan. Longer terms: Home equity loans often have 15-, 20- or 30-year terms-much longer to repay than many personal loans. It’s more akin to mortgage rates’ and, while those have been rising lately, they’re still much lower than the double-digit rates on many personal loans or credit cards.

Lower interest rates: Because they are secured loans (backed by collateral - your house in this case), the interest charged on a home equity loan is much lower than that on unsecured debt. Like any financing tool, home equity loans come with pluses and minus. Closing costs vary, but can run into the thousands of dollars based on the value of a property. One drawback is that home equity loans and lines of credit have closing costs and fees similar to a standard mortgage. Lenders typically require that you have between 15 percent and 20 percent equity in your home in order to take out a home equity loan or line of credit.

During this period, you can use money from the credit line, and you’re only responsible for making interest payments.īoth options require you to have a certain amount of home equity this is the portion of the home you actually own. HELOCs come with draw periods that normally last 10 years. A HELOC operates similar to a credit card in that you borrow money on an as-needed basis.

Home equity loans are similar to personal loans in that the lender issues you a lump-sum payment and you repay the loan in fixed monthly installments. It is one of two types of home equity-related financing methods, the other being home equity lines of credit (HELOCs). A home equity loan is a type of loan that uses your home as collateral to secure the debt.

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