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If you own a home and have some equity in it, you might be eligible for a home equity loan. The question is should you get one or not? Every situation is different, but it might be helpful to analyze and consider the pros and cons of home equity loans before applying. Here are some of the top pros and cons of these loans.
Pros of Home Equity Loans
A home equity loan offers a way to borrow money from the equity in your home. Your equity is the difference between your home's value and the amount you owe. For example, if you owe $240,000 on your home and it is worth $350,000, you have $110,000 of equity in the house. You might not be able to borrow all of this amount, but a lender might approve you for part of it. Borrowing this money is fairly easy to do, which is another benefit of a home equity loan.
Another benefit is that home equity loans offer long durations for repayment. When you borrow from your equity, you can often choose to repay it over 5 to 30 years. Therefore, you can control the payments and keep them low enough that you can afford them.
You might also have the ability to write off the interest you pay on the home equity loan because it falls into the home-loan category. Finally, interest rates on home equity loans are usually lower than the rates on other loan types.
Cons of Home Equity Loans
There are several downsides to home equity loans, though, that you should know about before getting one. The main one is that you will have a second mortgage payment to pay each month. If you already have a high payment that you can barely afford, you might struggle to pay the second payment. The other downside is that you will have to pay closing costs to get the loan, and you will need an appraisal. These costs can add up, so you should ask your lender for a breakdown of the costs before getting the loan.
Understanding these things can help you determine if you should pursue one. If you need some cash and have equity in your house, you might want to talk to a lender to learn more about your options. Contact a home mortgage lender today to find out more about your eligibility for a home equity loan.Share