Home Equity Loans and Lines - What are the Advantages?
by: Chris Robbins
If you are looking to make a large purchase, or even consolidate your debt, an often overlooked sourec of money is your home's equity. There are several reasons why your home is a good source of funding. These are outlined below. However, we must caution that home equity loans and lines of credit are secured by your home. If you default, you are at risk of losing your home. So, it is vital that you be able to make the required payments, on time. If you are living on a fixed income and have no other liquid assets, this form of borrowing can be risky. If you fail to make timely mortgage payments, you can lose your home ant there may be better options available to you.
Here are some of the primary advantages of home equity funding .
1) Conventional home equity financing is readily available from most mortgage lenders: That is, most banks, credit unions, savings and loan associations, and other mortgage lenders offer home equity financing. It's easy to shop for.
2) With a line of credit, you have convenient access to loan funds:
Most home equity lines of credit are accessed with checks or a credit card. This makes access to the funds easy and convenient. You present the check or card in the same manner that you would present any other check or card. The lender extends the funds and adds the amount to your principal balance. (Note: Home equity loans do not have this feature. When you obtain a home equity loan, the lender transfers the entire loan amount to you at the loan closing. When you obtain a reverse mortgage, you typically receive monthly disbursements in a fixed amount.)
3) Generally, interest payments on loans secured by your home are tax deductible, but there are some limitations. Talk to your tax assistant or a CPA.
4) L enders typically offer better interest rates for this type of financing than they do for other, unsecured types of personal loans. In most cases, you'll be able to borrow an amount equal to 80 percent of the value of your equity Considering that many credit cards and personal loans have interest rates in excess of 12%, and home equity loans are often below 9%, you can save thousands of dollars in interest alone over the life of the loan. Do the math, and make sure you are being offered what you deserve and clearly understand the payment terms before you sign the dotted line.
5) This is an excellent source of money in retirement. If you are retired or simply need extra money, and own a home, you may be able to get the cash you need by accessing the equity in your home.
About The Author:
Chris Robbins is a finance writer for Direct Lending Solutions. For a variety of lending options and more information on home equity loans, visit http://www.directlendingsolutions.com. More information about home equity loans available from the United States Federal Reserve at http://www.federalreserve.gov/pubs/equity/equity_english.htm.
March 2006
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