Home prices are rebounding, and that is opening a door for homeowners to tap into their equity for a loan or line of credit. According to Experian, in the first quarter of 2015 “consumers opened $31 billion in new home equity lines of credit (HELOCs). Should people be considering home equity loans now that the housing market appears to have stabilized? Today’s borrowers are more sophisticated than those who took a big hit when the housing bubble burst and many lost their homes.
Borrowing Against Your Property
According to Pinnacle FCU, two types of loans are available that allow you to borrow against your property. The first is the traditional home equity loan, which allows you to borrow a fixed amount that is paid back. The second option is a HELOC, which provides the convenience of a credit card. You are granted a set amount of credit for a specific time period, which is available on an as-needed basis. When the HELOC loan period ends, the repayment plan begins. The interest rate is adjustable and will fluctuate with the market. If you need a large amount of money for a remodeling project or other purpose, a home equity loan makes sense. If your goal is to have money available for smaller occasional needs over a period of time, then the HELOC makes the most sense. HELOCs do have drawbacks including the adjustable interest rate, which can be costly in the long run. The other major drawback is the freezing of your line of credit if you home drops in value or your financial worth changes.
Practical Reasons To Borrow
According to Interest, there are practical reasons a homeowner would want to take advantage of a home equity loan. If your home is older and needs to have replacement windows and doors, a home equity loan may be the perfect solution. The replacement windows will reduce your energy costs and increase the resale value of your home. Some people use a home equity loan to advance their education. Many people graduated from college before computer technology was required in every industry. By taking classes to increase his or her knowledge in computer technology, the homeowner is also improving their chances of advancement in their career with an increased salary.
If you have a good practical reason to need a loan, go with a home equity loan rather than a HELOC.