Do you own your home? Are you looking to put its equity to use? Perhaps a home equity loan?
If so, a home equity loan may be just what you’re looking for. As the name suggests, it allows you to tap into your home’s equity in the form of a loan.
Before we discuss the top reasons to choose a home equity loan, there’s one thing you need to know: since your property acts as collateral, the lender has the legal right to repossess it should you fail to repay the loan per the terms and conditions.
With that in mind, let’s focus on some of the many reasons to consider a home equity loan:
1. Lower interest rate than other types of loans
Since you’re using your house as collateral, the lender takes on less risk. And for this reason, they’re able to offer a lower interest rate than many other types of loans, such as a personal loan.
Adding to this, a home equity loan typically has a fixed interest rate, thus giving you a clear idea of what your payment will be each month (it never changes).
2. Fast application and approval process
Generally speaking, you can apply for a home equity loan and receive funds within two to three weeks. And in some cases, depending on the lender, it may be faster than that. The only thing that typically slows down the process is the appraisal of your home, as it can take some time to get it scheduled.
The key to an efficient process is providing the lender with everything they need upfront. Furthermore, if additional information is requested, don’t hesitate to provide it.
3. You can use the funds for almost anything
While your lender may ask how you plan on using the funds, there aren’t too many limitations (as long as it’s legal).
Some of the most common use of funds include:
- Home improvement project
- To pay for an event, such as a wedding
No matter what you need the money for, a home equity loan may be the best way to get it.
4. Varying terms
The term of your loan will impact the monthly payment. The longer the term the less you’ll pay each month. Of course, this also results in more money in interest coming out of your pocket.
As you compare lenders, ask about available terms. Typically, this ranges from 12 to 60 months.
5. You’re paid in a lump sum
Once you sign on the dotted line, your lender will transfer the funds of your home equity loan into your bank account. You get all the money at once, so you’re able to immediately spend it however you best see fit.
If you’re not interested in a bank transfer for any reason, your lender may be able to send you a check for the funds.
It’s important to compare the pros and cons of a home equity loan, with your financial circumstances in mind, as this will help you make an informed decision.
If you like everything you see in regards to benefits, it’s time to find a lender, complete an application, and decide if it makes sense to accept the funds.