Home equity loans provide you with a way to borrow against the value of your home. They can be used for various reasons, such as debt consolidation, home improvements and emergency medical expenses. Plus, these come with fixed interest rates so you know exactly how much you’ll owe each month.
A Home Equity Loan Can Be the Ideal Solution For Your Financial Needs
Are you in need of a large lump sum or want to use your home’s equity as credit line, home equity loans may be suitable. But be sure to research all options thoroughly and ensure you can afford the payments.
When it comes to home equity loans, two popular options are traditional home equity loans and home equity lines of credit (HELOCs). With these options, you can take advantage of your property’s value for a larger lump sum or an adjustable line of credit.
Traditional home equity loans are fixed rate, revolving debt that uses your home’s existing equity as collateral for the amount you borrow. While the interest rate on these loans tends to be lower than credit card interest rates, their term may be longer in duration.
The amount you can borrow with a home equity loan depends on two factors: your credit score and debt-to-income ratio. Typically, lenders require at least 620 to qualify; in addition, they take into account both factors when calculating monthly payments.
Lenders will calculate your debt-to-income ratio (DTI) in order to assess if you can afford additional debt with the funds in your checking account. The DTI is usually calculated by dividing all monthly debt payments – including any home equity loans or HELOCs you have – by your gross monthly income.
If your debt-to-income ratio (DTI) is high, you may still qualify for a home equity loan if you make on-time payments and demonstrate good credit history. However, be aware that the interest rate on the loan may be higher than if your DTI is low.
Another viable option is a cash-out refinance, which lets you borrow against your home’s equity by taking out a new loan for any difference between what you owe on your primary mortgage and its appraised value. You could also take out a home equity line of credit or apply for an adjustable-rate mortgage to reduce monthly payments and save money in the long run.
Cash-out refinancing a home equity loan is an alternative choice for homeowners who don’t require a large lump sum and would rather have access to more flexible credit. With this type of loan, you can borrow up to 85% of the value of your house and draw on this line as needed for an agreed period of time.