Why Home Equity

The numerous benefits of home equity loans make them a very popular borrowing option for homeowners. We'll enumerate these benefits to explain why home equity is such an appealing route.

Equity Rates

Lenders view great home equity loans as extremely safe because they are secured by the borrower's home. The minimal risk involved with these loans allows lenders to charge much lower rates than they otherwise would. Although home equity loans tend to have slightly higher rates than primary mortgage loans, their rates are typically lower than those of credit cards, most personal loans, and car loans. The low interest rates of home equity loans make them one of the most affordable sources of cash available.

Tax Breaks

Great home equity loans are also sometimes called second mortgages. If you are a homeowner, you're probably already aware that the interest on mortgages is tax-deductible. You can deduct the interest from your income tax for home equity debt of up to $100,000. Equity loans are the only source of cash that can offer these valuable tax breaks.

Large Loan Amounts

For most consumers, credit cards tend to have relatively low credit limits and thus are not well-suited to pay for major life expenses. Likewise, personal loans tend to be too small to cover large expenses. As an alternative, consumers can take out great home equity loans and borrow up to 110% of their home's value with some lenders. If you have a house worth $150,000, for example, you could get a loan of that amount or more, depending on your lender. With a loan that size, you could cover big expenses like education costs, debt consolidation, and more.

An Alternative: Cash-Out Refinancing

If you are looking for alternatives to great home equity loans, you may also consider cash-out refinancing. For cash-out refinancing to work, homes should be appreciating in value while interest rates are falling. With this option, you refinance your current mortgage for more than you owe. You then take the difference in cash to use as you see fit. For instance, let's say your house is worth $100,000, and you owe $70,000 on your mortgage. Homes have appreciated in value recently, and your house is now worth $200,000. You could do a cash-out refinance for $150,000 and take the $80,000 difference in cash.