Is a $10,000 home equity loan worth it?
The average homeowner has hundreds of thousands of dollars worth of equity right now. And, that's good news considering the fact that home equity loans often have more competitive interest rates than other options. So, if you need to borrow money, and want a competitive interest rate, a home equity loan may be the way to go.
But, there's a trade. While you can borrow relatively small amounts of money when you use some other options, you'll typically have to borrow at least $10,000 in order to tap into your home equity. So, that begs the question, "Is a $10,000 home equity loan worth it?" There are some times when it is and others when it's not.
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Is a $10,000 home equity loan worth it?
Making blanket statements like "a $10,000 home equity loan is worth it," or "a $10,000 home equity loan isn't worth it," doesn't usually work in finance. Financial decisions are best made when considering the unique circumstances surrounding those decisions. Understanding this, here's when a home equity loan in this amount may or may not be valuable for you.
When a $10,000 home equity loan may be worth it
A $10,000 home equity loan may be worth it if you're using it to cut the cost of other debts. For example, say you have $10,000 in high interest credit card debt. In this case, a $10,000 home equity loan may help you consolidate your credit card debt at a lower interest rate - offering meaningful short-term and long-term savings.
A $10,000 home equity loan may also be a good fit if you have home repairs you need to take care of. For example, say you have a leaky roof. According to Angi, the average cost of a roof replacement is $9,398. So, a $10,000 home equity loan could be enough to cover that cost. Not to mention, when you use your equity to improve the home you borrowed it against, you may qualify for tax advantages.
And, a $10,000 home equity loan may be worth it if you're using it to address your health. For example, say you have a high deductible health plan and you can't afford to cover your deductible out of pocket. If you need to undergo a procedure or pay for expensive medications, a $10,000 home equity loan could give you the funding you need to cover the cost of your medical needs.
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When a $10,000 home equity loan may not be worth it
Though there are times when taking out a $10,000 home equity loan may be worth it, there are other times when you should probably avoid doing so. One reason a $10,000 home equity loan wouldn't be worth it is if you can't afford to make the payments.
The average interest rate on a 15-year home equity loan is 8.75%. At that rate, a $10,000 home equity loan with a 15-year term would cost $99.94 per month. So, if you can't absorb an extra cost of around $100 per month, a $10,000 home equity loan wouldn't be worth it.
It's also worth noting that a $10,000 home equity loan may not be worth it to cover the cost of non-urgent items. For example, if you want to take an expensive vacation or buy a new car, a home equity loan may not be the best option. Keep in mind that your home is the security that backs a home equity loan. So, defaults on these loans could put your home in jeopardy. As such, it's typically best to use these loans to cover necessary expenses rather than consider them as a source of funding when you want something that's non-essential.
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The bottom line
There are times when it's worth taking out a $10,000 home equity loan and times when it isn't. If you plan on using the loan to cover the cost of medical treatments, home repairs or even to cut the cost of high interest debt, a home equity loan may be worth taking out. On the other hand, if you can't afford at least $100 per month in payments or you plan on using the loan to cover the cost of things you want, rather than things you need, a home equity loan may not be your best option.
