What Is A Home Equity Loan?
A home equity loan, also known as a second mortgage, allows you to borrow a large sum of money by using your home/property equity as collateral.
How Home Equity Loans Work
It works like this: if the value of your home is worth $200,000 and you still owe $150,000 on your mortgage, your available equity to borrow is $50,000 [1].
Benefits Of A Home Equity Loan [2]
- Easier to qualify for than other types of loans
- Low interest rates and monthly payments
- No restrictions on how you can use the funds
- You can access large sums of money immediately
Why People Get A Home Equity Loan
Here are some reasons why you might benefit from a home equity loan:
- Weddings
- Major home renovation
- Pursuing a college education
- Debt consolidation
- Emergency expenses (job loss, medical bills)
- Certificate of Deposit
Remember, a home equity loan is still a loan that you will need to pay back. These loans serve best for purchases that will have a positive financial return in the long run. To stay out of debt, and to avoid losing your home, do not use a home equity loan for:
- Expensive vacations
- Luxury cars
- Designer clothing
- Paying off credit card debt
How To Know If You Qualify For A Home Equity
A lender will determine your financial responsibility by appraising your house, calculating your debt-to-income ratio (which compares your monthly debt payments to your monthly income), and checking your credit card score [2]. If a lender determines you will be a responsible borrower, then they will approve your loan request.
If you are interested in discussing a home equity loan, Greenville Savings Bank can help. Contact your local Greenville Savings Bank today!
References
- “What are the Benefits of a Home Equity Loan.” Discover.com
https://www.discover.com/home-loans/articles/benefits-home-equity-loan/ - Dehan, Andrew. “Home Equity: A Complete Guide.” Rocketmortgage.com
https://www.rocketmortgage.com/learn/home-equity-loan
