The home equity loan will allow you to lend money for huge expenses or even aid you with debt consolidation. So as a responsible borrower who has a fixed and reliable source of income, a home equity loan will look like an excellent option. Mentioned below are some of its benefits.
Fixed Rate Of Interest:
Home equity loans usually come with a fixed rate of interest. For the coming years of loan repayment, the rate of interest will stay fixed. So you can plan the loan repayment in a much better way when you will be paying it each month. A fixed rate of interest is much better than the variable one that keeps on changing with the economy’s as well as the lending company’s performance. In an environment of changing rate, a loan with a fixed rate of interest will offer simplicity in the budgeting. This is because the payments you will be making every month will remain constant over the life of that loan as well as not increase. So if the rate of interest rises, your payment will never get affected.
Low Rate Of Interest:
One of the biggest benefits of home equity loans is their low rates of interest. Any unsecured loan such as credit cards as well as personal loans are never backed up any anything. The lender only has some faith in you that you will repay the debts. This being a risky proposition, you need to pay a higher rate of interest. The rates of interest on the home equity loans are much lower than the personal loan’s rate or credit card’s rate of interest as your home will be used as the collateral. From a bank’s point of view, it is a strong guarantee that any borrower will be repaying the loan reliably. The bank basically assumes that the borrower will unlikely put his home at huge risk. A low rate of interest will aid in keeping the borrowing costs very low.
Home equity loan is the easiest way to avail a large amount of money within a short time. Thus a fixed rate of home equity loan is excellent for those scenarios where the homeowner is exactly aware of what he is going to do with the loan. Home improvements, clearing of various debts, financing a child’s education can be included as the purpose of taking the loan. The amount you will borrow with any home equity loan will be provided in one large amount rather than you withdrawing the amount based on your needs. Thus you will have the flexibility to cover up large expenses. It is also repaid by making monthly payments that are fixed. Each payment will reduce the balance of the loan as well as cover up the cost of the interest on a very familiar amortization schedule.
A home equity loan will offer the homeowners great flexibility when they will spend the money. There is no restriction on how you should use your money. Some loans need you to justify the plans for taking the money like putting up a business plan for availing a business loan. But you can use home equity loan however you want. You can begin a business, pay for your vacation, buy an investment or may use it for any other purpose. Some of the reasons for making use of the home equity loan will be better than other loans. But once you apply for it and get it approved, you can use the large amount for anything you want.
A large amount of home equity loan has stability. Thus homeowners prefer it. Home equity loans have a fixed rate of interest that never gets changed over the life of that loan. So once an individual takes a home equity loan, the money will be his. He will have to pay off the loan every month.
A home equity loan is tax deductible. It is almost similar to the primary mortgage. As a result, it is completely removed from any taxable income. The total tax expense liability is thus lowered. If you used the home equity loan for the renovation of your home, then tax deduction will be there for all those monthly interests that you keep on paying on the loan. But there is a tighter limit on how much tax you can deduct if the borrowed funds are used for any other task rather than buying, building or improving a home. For more information, you can consult a tax professional.
Home equity loan may appear to be a great financial move, particularly in certain conditions. But you must think well before you opt for it. Compare each and every loan option starting from personal loans, credit cards to the home equity loan, etc. and then take the loan that will best fulfill your requirements.