Have you noticed that every time you watch your favorite TV show, a home equity loan commercial seems to pop up? Or, you rush out to your mailbox and discover yet another offer wanting you to take out a home equity loan?
Without question, home equity loans have exploded in popularity over the past few years. It has become the way of getting the money you need to solve your financial needs. But, many people don’t fully understand just what they are. Here are some of the basics on what these types of loans are all about.
In simple terms, a home equity loan is money that you can borrow by using your home as collateral. The amount you can borrow is based on the current value of your home, less the amount you still have due on your original mortgage.
For example, let’s say you have a home that is valued at $500,000. Your current loan balance is sitting at $400,000. You could possibly obtain a loan for $100,000.
The total loan amount will be determined by variables such as your current credit history, etc. Keep in mind though, even if you currently have some credit issues you’re dealing with, a bad credit home equity loan is not that difficult to get. It just takes a little more effort in finding.
You can use the funds for whatever you wish. This can be both a positive and negative though. Here’s why.
Home equity loans are great for uses such as home improvement projects, college expenses, medical bills, and of course, bill consolidation. Getting out from under debt is a major reason that people get a home equity loan.
But, people will also borrow money on the equity in their homes for items like a new car, appliances, exotic vacations, or other luxury items. Well, it’s your money and you can certainly use it as you see fit, but be careful.
Make sure that you can afford the monthly payment for years to come. Since a home equity loan is secured by your home, if you go into default on the loan, the lender can take possession and sell your home to satisfy the debt.
Check out several offers before making a final decision to sign any loan agreement. Take your time and you’ll be fine. Getting the right home equity loan for the right reasons could very well be the solution you’re looking for.