If you have enough equity in your home, then you can take out a home equity mortgage loan to repay your high interest unsecured debts. You can also tap your home equity to make improvements on your home so as to increase the value of the property. Read this article to know about the types and the benefits of home equity mortgage loans.
Types of home equity mortgage loans
There are 2 types of home equity mortgage loan – home equity loan and HELOC. A home equity loan is a one time loan that you can take out by pledging your home equity. A HELOC or a Home Equity Line of Credit offers you the flexibility to borrow amount as and when you need it. However, you cannot borrow more than your available credit limit. You may or may not borrow the entire amount that is available to you.
Home equity loan versus HELOC
The similarities and differences between a home equity loan and a HELOC are discussed below.
Similarities:
Type of second mortgage: Both these loans are second mortgages that you can take out by pledging your home equity.
Amount you can borrow: The amount you can borrow is dependent upon the current appraised value of your home and how much you owe on your first mortgage.
Differences:
Interest rate: A home equity loan is usually a fixed rate mortgage whereas a HELOC is an adjustable rate home loan.
Flexibility: A home equity loan is a one time loan whereas in case of HELOC, you can take out money as and when required.
Benefits of home equity mortgage loans
The benefits of taking out a home equity mortgage loan are discussed below.
Use it as you want – You can get quick access to cash and use the money the way you want. You can utilize it to pay off your debts, make improvements on your home or meet your other financial needs.
Tax benefit – Usually, the interest paid on a home equity mortgage loan is tax deductible up to a certain extent.
Low rate of interest – The interest rate on a second mortgage is comparatively low.
In spite of the above benefits, you should check your financial condition before taking out home equity mortgage loans. This is because, you may lose your home if you’re not able to repay the loan on time. Moreover, if the property value drops, then you may be upside down; that is, you end up owing more on your home equity mortgage loan. So, before taking out such loans, assess your other expenses and make a budget to ensure that you’ll be able to make the required monthly payments, right on time.
Keyphrase: home equity mortgage loan
Description: Check out the benefits of a home equity mortgage loan. Know about the similarities and differences between a home equity loan and a HELOC.
