If your family is outgrowing your home, your credit card bills are piling up or you’re faced with dipping into a retirement fund to pay for bills, a home equity loan could be the answer. Explore the benefits and possibilities of this type of loan below.
What is a home equity loan?
A home equity loan is a type of loan that allows the borrower to use the value of his or her home as collateral. You can borrow a fixed amount, secured by the equity in your home, and receive the money in one lump sum. Home equity loans typically have a fixed interest rate, fixed term and fixed monthly payments. They are different from other types of personal loans in that interest rates may be lower and interest payments may be tax deductible in some cases (consult your tax advisor to see if you qualify).
What is home equity?
Home equity is the difference between the value of a home and what is still owed on the mortgage. For example, if the market value of your home is $200,000 and you owe $160,000 on the mortgage, you have $40,000 in home equity. You increase your equity each time you make a mortgage payment on an amortizing loan, and more rapid increases can be made by improving the home value with renovations and upgrades.
How can a home equity loan be used?
A home equity loan can be used to transform your home, streamline your finances or accomplish big life goals. Use a home equity loan to complete marketable home improvements and you can increase the overall value of your property. It’s important to find the balance between making changes that increase your enjoyment of the home and that make it a more valuable real estate property. Bathroom and kitchen remodels and vinyl window replacements have some of the highest rates of return.
A home equity loan can also be used to consolidate high-interest debt. If you are juggling payments on multiple credit cards you could reduce monthly payments (and stress) by taking out a home equity loan and paying off all your balances all at once. Apply for the loan to determine what interest rates are available. If your quoted rate is significantly lower than your credit card APR, you stand to save a lot in interest by consolidating your debt.
Do you have an expensive wedding or other big expenses on the horizon? Take advantage of the equity you’ve built in your home by using a home equity loan to pay for these major expenses. Once again it’s important to do the research, but home equity interest rates may be lower than rates for credit cards, or other unsecured and secured loan options.
How should a home equity loan be used?
A home equity loan should be used responsibly to help you achieve your personal and financial goals. Understanding the real cost of your goal is a great place to start. Once you’ve developed realistic budgets for a home project, added up all of your individual debts, you can determine how much of a loan you’ll need to make it happen. You should not use this type of loan when there are lower interest options available.
With a little research and budgeting it’s easy to determine if a home equity loan is the right choice for you. To learn more about using a Discover Home Equity Loan, call your Personal Banker at 1-855-361-3435 today. Or, you can apply online now and see if you qualify in minutes. We’ll show you what product options, terms, APRs, and monthly payments are available to you.