A Home Equity Loan may sound like a really good deal, especially when offering lenders use today’s low interest rates as bait. Certainly, if you’ve gained significant equity on your home, it may be tempting to tap into this reserve and use the loan proceeds to splurge on whatever you see fit. Or not.
Maybe you have important money matters to take care of and a home equity loan provided just the right fix to that ball and chain. But the question that remains is, is it really the right time for you to go after that earned equity?
The answer might not always be a yes, depending on your situation. When you decide to get a home equity loan when you shouldn’t, you might end up paying more money than you should, while carrying the burden of the loan longer than you’d like.
So when is the right time to get an HEL?
Experts say an HEL is only right when you:
- Have enough equity. The more equity you have in your current home, the better.
- The new loan will result to lower interest and therefore, lower payments. When interest rates were higher the first time you took out your original mortgage, refinancing via HEL with a lower interest rate could save you thousands of dollars on interest payments.
- If you will be moving in the next few years. If you do not plan to stay longer in your home, refinancing via HEL and using the money to facilitate your residence change or pay for the down payment of a new home could be the way to go.
- The new loan will end in savings via reducing fixed costs.
Additionally, experts say an HEL could be a good alternative to finance your home improvement needs as well as to fund education and emergency expenses. You don’t want an HEL to pay for your car or your credit cards, however, as that will only extend the term that you need to satisfy the conditions of the loan.
When not to get an HEL?
A home equity loan sure is a tempting refinancing strategy. Aside from less acquisition costs, the interest charged on this loan may be tax deductible as well.
Yet, it is important not rush into the decision of getting one if there are more beneficial refinance options available to you. If you do not want another lien on your property, you can prefer to cash-out on that equity instead; and if you want more control on the amount of equity you can tap, a HELOC or home equity line of credit can be a better option.
Evaluate your situation first before making a solid decision. Call our experts for professional guidance.