A home equity loan can be a good idea depending on what you plan to use it for. If you are considering getting a home equity loan then there are a few basic things you should bear in mind, so that everything works smoothly and you do not end up losing your home. Here are some things to think about.
Choose Your Loan Type Wisely
When you go to get a home equity loan there is a good chance that you will be introduced to what is known as a HELOC. While a HELOC may be tempting and may yet turn out to be the best option for you, there are some significant differences between a home equity loan and a HELOC that you should know beforehand. Home equity loans let you borrow a set amount of money and pay back at an agreed interest rate over a period of time. However, a HELOC is more like getting a new credit card. HELOCs make a specific amount of credit available to you for up to ten years and tend to have lower interest rates than home equity loans. If you want to have small amounts available to you as needed, this might be the best choice. However, over time interest rates on HELOCs tend to rise and you may end up paying more interest on it than you would on the lump sum from a home equity loan, so choose wisely.
Using Home Equity For Renovations
While it may seem like a good idea to get a home equity loan to do renovations, such as a kitchen or a bathroom remodel, it may not be the best choice. Remember, that while renovations may increase the value of your home it does not ever raise the value of your home significantly enough for you to justify getting a home equity loan for just that purpose. Home equity loans for renovations are only a good idea if your family's safety is at stake.
Reducing Credit With Home Equity Loans
If you have several high interest credit cards then it is a good idea to get a home equity loan to pay off these balances and pay back at the home equity loan's lower interest rates. Take as much of the money to pay off the credit cards as you can get, if you can't get it all. After that the only thing you need to do is keep your credit card balances down and pay off the home equity loan.
Use the tips given to make the best decision about your home equity loan. This will ensure that you do not have any regrets about getting the loan. Contact a lender, like Frontier Community Credit Union, for more help.