When to apply for a Home Equity Loan
If you are in need of funding for a one-time project or one-time large expense, a home equity loan is the better option. A home equity loan enables you to borrow a lump sum of cash at a fixed rate of interest. It’s a good option for borrowers that want the security of a fixed-rate loan, a fixed term, and a fixed monthly payment. Your loan is paid back in installments each month, making it easy to budget for a specific monthly payment. A home equity loan is ideal if you are borrowing for one large known expense, such as the following:
- Home remodeling project being completed all at once
- Debt consolidation
- Vacation
- Medical expense
- Wedding expense
- College tuition
- Vacation home
- A large purchase
When to apply for a Home Equity Line of Credit
Those with larger expenses that will be spread out over a period of time, may find the benefits of a HELOC much more appealing. When you apply for a home equity line of credit, you have access to an approved limit of cash, but you don’t need to pay any interest on the money until you actually start to withdraw it from the line. It’s great when you don’t need the funds all at once. Your payments are based on the balance you withdraw from your HELOC, rather than the total of your approved amount. The line allows you to draw funds when you need them. As you pay down the balance, you can continue to re-use the line for the entire term of the loan. There will be a pre-specified draw period and repayment period. You also have the peace of mind in knowing you have access to funds in the event of an emergency. A HELOC is ideal for borrowing needs including:
- Home improvement projects that are spread out over time
- Ongoing Educational expenses
- Debt consolidation
- Emergency or unexpected expenses
- Large expenses, such as new appliances
- A combination of expenses
Finding the best deal on a Home Equity Loan
Shop till you drop! Just as you shop around to find the best deals on a car loan, vacation or a new home entertainment center, you should shop around to find the best rates and deals on home equity loans and HELOCs. To compare apples to apples, you will want to know all the costs and fees involved in paying for the loan, in addition to the interest rate. The lowest interest rate does not always equal the best deal, especially when high fees are involved.
Because Home equity loans and HELOCs are secured using your home as collateral, they usually offer lower interest rates than unsecured loans and other types of debt. This makes them a great choice for consolidating higher interest debt and high-interest credit card balances. Used responsibly, with a focus on making your monthly payment on time every month, a home equity loan or a HELOC can be a great financial tool in helping you realize your financial goals. When used irresponsibly, however, they can put your home in danger of foreclosure. Your house is after all the collateral for the loan, so it’s imperative you are sure you can make the payments before borrowing. You also want to be sure you can avoid the temptation of using a HELOC for items you don’t really need. That can quickly lead to financial trouble.
Borrowing against your Home Equity
The equity in your home increases as you pay down your mortgage. This opens up the opportunity to use that equity to borrow and finance other large expenses. Qualifications for home equity loans vary among lenders, but in addition to having enough equity in your home, most lenders will also check your credit score, monthly income, and your debt-to-income ratio. Learn more about Benchmark Federal Credit Union’s competitive rates on home equity loans and HELOCs or apply for your loan right online. Not a member of Benchmark Federal Credit Union? Learn more about eligibility.