Why a home equity loan may be worth it for you
In today's economic climate, many Americans are more judicious about how and where they spend their money. They also need to be careful about where that money comes from. A full-time job and even a passive income gig may not always be enough to help pay for rising expenses. While credit cards and personal loans can help make ends meet, they typically come with high interest rates.
Fortunately, homeowners have a unique, low-interest credit option that they can turn to: their home's equity. With a home equity loan or a home equity line of credit (HELOC) homeowners can secure some much-needed financial support to pay for major expenses, emergencies and overdue home repairs and renovations. The options for using a home equity loan are endless, thus making this credit option worthwhile for many adults.
If a home equity loan sounds advantageous to you then start exploring your options here now.
Why a home equity loan may be worth it for you
Here are three reasons why a home equity loan could be valuable for you.
It's tax-deductible
Many people logically turn to their home equity to make household repairs, renovations and major improvements. In these instances, homeowners may be able to deduct the interest they paid on their home equity loan when they file their taxes.
"Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan," the IRS explains online. "The loan must be secured by the taxpayer's main home or second home (qualified residence), and meet other requirements.
"Generally, you can deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 8a," the IRS says. "However, any interest showing in box 1 of Form 1098 from a home equity loan, or a line of credit or credit card loan secured by the property, is not deductible if the proceeds were not used to buy, build, or substantially improve a qualified home."
Rates are lower
Interest rates on credit cards are around 20% currently while those for personal loans are around 11% on average, depending on the borrower's credit history. Interest rates on HELOCs and home equity loans, meanwhile, are around 6% to 7%, making this one of the lower interest options currently available. As with all financial products and services, the most favorable rates and terms are reserved for those with the highest credit scores and cleanest credit histories so make sure your credit is in good standing before applying.
Check your home equity loan interest rates here now and learn more.
Interest rates are fixed
In today's economy, any predictability you can inject into your personal finances is welcome. Fortunately, home equity loans allow this by providing fixed interest rates. Unlike HELOCs, in which the interest rate is adjustable and tied to economic conditions and other factors, the interest rate you get for a home equity loan will be low (see above) and locked in, allowing you to budget appropriately. Because of this, your payments won't change and you'll know exactly what to pay back each month. This feature may not be as appealing as the low rate or the potential tax deduction but in an economy plagued by rising costs and uneven market performance, any stability is welcome.
The bottom line
For homeowners looking for ways to finance rising expenses, home repairs or more, a home equity loan could be worth it. If used for IRS-eligible home repairs the homeowner could deduct the interest on the loan when they file their taxes. But home equity loans have multiple benefits, including lower interest rates than some other traditional credit options and those rates are also fixed, locking in the homeowner at a low, stable rate until the loan is paid back.
Check your home equity loan options here now to see if it's worth pursuing.
