Home Equity Loans – Pluses & Minuses
Historically low interest rates may be gradually bringing home sales back from the depths, but one obvious place where they’ve had impact is with refinances, equity lines and equity loans. Record numbers of people are taking advantage of the low cost of money and their home investments to recalibrate their financial situations.
The home equity loan is a program where home owners borrow money by using the equity they have in their homes as collateral. In the present environment there are a few reasons to consider taking out one. First, with low interest rates, it’s possible to borrow to offset other financial obligations without significantly increasing monthly expenses. For individuals with economic concerns for the near future or mounting short-term debt, borrowing money in this fashion may be a good solution.
There are some negatives to consider as well. The biggest of course, is risk of default, which can lead to the forced sale of the home. There are also often additional costs in the actual transaction, which can include things such as appraisals and title fees and with payments spread out over 15 years or more, the borrower will wind up paying out a significant amount of interest over the life of the loan. Home equity loans are also one-time transactions. Unlike equity lines, where the home owner can access a line of credit on an as needed basis, the amount being borrowed in a home equity loan is provided to the home owner at closing.
If you’re considering taking advantage of the money you’ve sunk into your home, it’s a good idea to meet with a financial advisor, to determine which type of transaction will work best for you.