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Should you get a home equity loan now?

A home equity loan can be beneficial for homeowners who have seen the value of their home increase in recent years.

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As an effect Inflation and rising interest rate Continue to 2023, many people are looking for ways to better manage their finances. Perhaps you’ve run into credit card debt, for example, or you’re looking for some breathing room in your monthly budget.

For homeowners, one option to consider is a Home equity loan. Often called a second mortgage, a home equity loan allows you to borrow cash based on the equity in your home.

Remember that even though the names are very similar, a home equity loan is different from one Home Equity Line of Credit (HELOC). A home equity loan works like a mortgage that you pay back over time A HELOC Works like a credit card with a borrowing period that is usually separate from a repayment period.

With a home equity loan, you can typically borrow up to 85% of the value of your home, minus the current mortgage debt. So, on a $1 million home with $200,000 in mortgage, you may be able to borrow up to $650,000. The specifics, however, depend on your personal circumstances and where you are borrowing from. Some lenders may allow for higher or lower home equity loan limits.

If you think you might benefit from a home equity loan, get started now by checking your eligibility here or use the table below to explore your local options.

Should you get a home equity loan now?

Why would a home owner borrow money from their home? While this is not a decision to take lightly, some of the top home equity loan benefits you may want to consider include:

Opportunity to profit from the real estate boom

The recent real estate boom means there’s a good chance your home is worth much more than it was pre-pandemic. If you don’t want to sell your home, you can still benefit from the higher appreciation of your home with a home equity loan.

You still have to pay back that money, serving as collateral for your home, so you don’t want to use home equity loan funds to splurge on unnecessary items. However, you may benefit from accessing these funds to renovate your home or manage a period with loss of income, for example.

Fixed interest rate

Home equity loan There is usually a fixed interest rate. While borrowing costs are generally higher across the board now, locking in a fixed interest rate on a home equity loan can be helpful if you have high-interest debt, such as credit cards.

If you can pay off that high-interest balance first and then pay off your home equity loan, you can come out ahead, especially if rates continue to rise. Other loan options, eg HELOCsThere may be variable rates, meaning you don’t know what your payments will be like down the road.

Explore your home equity options online today to see if it’s right for you

A single collective meaning

Another home equity loan advantage is that you can get it as a lump sum rather than in installments. At one time, you can have a large amount of money which gives you flexibility, such as making other investments.

While making other investments with a home equity loan can increase your risk, it’s possible that you’ll find one that offers a higher return than your fixed interest rate on your home equity loan, allowing you to make money on a net basis.

May be tax deductible

A home equity loan, like some other forms of real estate borrowing, can offer tax benefits that you may not get with a personal loan. In particular, the interest you pay on a home equity loan can be tax-deductible if you use those funds to “buy, build or substantially improve” the property that secures the loan, as the IRS explains.

Be sure to check the IRS rules and consider consulting a tax advisor for clarification.

Bottom line

Although there are many potential home equity loan benefits, not all borrowers come forward. For one, if you can’t get a good interest rate on a home equity loan, the costs of borrowing may outweigh the benefits. Some homeowners may prefer to wait to see if interest rates drop.

Consider shopping around for different types of loans to see what works for your situation. You may want to talk to a financial advisor who can help you weigh what financial steps are right for you. You can now easily explore your home equity loan options here or search the table below for some local offers.

MoneyWatch: Managing Your Money

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