2 Things To Keep In Mind When Considering A Home Equity Loan
One of the most popular types of loans out there is a home equity loan, mostly because home equity loans can often allow a homeowner to borrow quite a bit of money for fairly low interest rates. The amount of money that you can get from a home equity loan is directly tied to how much your home is worth and is typically secured by your home. Listed below are two things to keep in mind when considering a home equity loan.
Avoid Paying Off Credit Cards
One of the biggest things to keep in mind when considering a home equity loan is that it is typically not a great idea to pay off your credit cards with it. A major reason for this is that your credit cards are considered unsecured debt, which means that there really is no property that they can seize if you end up not being able to pay off the credit cards without first taking you to court and getting a judge to approve the seizure of property.
However, if you are not able to pay back your home equity loan, the house itself can be taken by the bank since the house itself was the collateral for the loan. As a result, it makes doesn't really make sense to take out a secured loan that is tied to one of your most important investments (your house) to pay off an unsecured debt. In addition, if your credit card debt is so high that you have to consider taking out another loan to pay it off, then you also need to consider curbing your spending habits before taking out a new loan so that you do not simply build up that credit card debt again.
Consider Using The Loan For Renovations
One of the best uses for any home equity loan is to renovate or remodel your home. The primary reason behind this is that the renovation or remodeling project will often help you increase the value of your home, which will serve to increase your equity. The increase in equity also has the added bonus of increasing the amount that you can get from a home equity loan in the future, which is nice if you have more remodeling that you want to do down the line.
The improvements that you can use the home equity loan to make can range from completing your basement to buying new appliances or completing remodeling an outdated kitchen. In addition to increasing your home's equity, the remodeling may also be able to help you increase the value of the house to the point that if you were to sell the house it would allow you to pay off the home equity loan as well as the remainder of your mortgage.
Contact your bank (like TruPartner Credit Union) in order to discuss your home equity loan options. When getting a home equity loan, it is important to avoid paying off credit cards and other unsecured debt. Instead, consider using the loan to increase the home's equity through remodeling projects.