No matter how much we wish for it, money cannot be an unlimited resource. Even the richest women and men in the world find themselves in a fix with no money. At times like these, most of us begin to ask ourselves, should I borrow against my house?
One could borrow against several assets, but a home equity loan is the fastest way to get your hands on a substantial amount of money with relatively low-interest rates. So what are the pros and cons of borrowing against your home, and how can you get one?
What Is A Home Equity Loan?
When you take out a mortgage on your home, you begin putting down monthly or annual payments. During the mortgage period, you will have an outstanding amount and the amount you have paid. A home equity loan is one you take with the difference between the mortgage amount you’ve paid and the outstanding mortgage amount.
How to Get a Home Equity Loan
You can get a home equity loan from a bank, moneylender, or credit union. You want to go for an institution that offers the lowest fixed interest rates in the market. There is a chance of getting incredibly competitive interest rates, but if the interest rates are not fixed, they could go up in the future, leaving you with an unmanageable high-interest loan.
Always make sure your lender has a Nationwide Multistate Licensing number. You can further research the company using the NMLS number to see whether complaints have been filed against the company in the past.
Pros
- A home equity loan is a great way to get cash in your hands for projects that could bring in more money. You can utilize the loan amount by renovating your home to increase its market value. However, it is important to err on the side of caution when figuring out how to get a home equity loan because property loans can dip, leaving you with more debt than value.
- With fixed interest rates, you can predict and plan for all future payments, which is a big plus for people on a regular income. Additionally, a fixed interest rate can contribute towards low-interest costs compared to variable interest rates.
- Unlike other kinds of credit, a home equity loan is not hard to get. With a good credit score and a mortgage, you can get a contract in days or even hours. This may not be the case for other credit options you do not qualify for.
Cons
- The most outstanding disadvantage of a home equity loan is that it may have a higher interest rate than other credit options, depending on your location and financial situation. This is especially evident for people who take out their loans when the interest rates in the market are high, so they have to keep paying the fixed high-interest rates until they are done with the mortgage. To avoid this, take out your loans when the interest rates are low
- Taking out a home equity loan puts you at risk of losing your home should you fail to pay up. However, all loans come at a risk, and sometimes you have to take the bull by the horns and risk it.
- There is a high chance of misusing the money. Without the right financial advice, most people may make poor financial decisions because they work under the assumption that they have enough money. Avoid frivolously spending money obtained through credit.
The Takeaway
The answer to the question, “Should I borrow against my house?” is not straightforward, so you should take your time, do the math, and carefully analyze the risks. If you weigh the pros and cons of a home equity loan and add the knowledge of your unique financial status, you can make an indisputable and financially sound decision. All the best on your home equity journey.