Pros and Cons of a Low Rate Home Equity Loan


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It seems easy enough to take the equity in your home, pay off all the bills, and do everything you wanted to do to your home with a low rate home equity loan. Is it a wise decision to use all the equity in your home for things that are not necessary and have nothing to do with improving your home? After all, other things may develop later that are more important. Think about the future before you sink all of your home’s equity into one loan that will not increase the value of your home.

The economic feasibility of a home equity loan

Your home has increased in value since your first purchased it, but that shouldn’t be an automatic indication that you should cash in on a low rate home equity loan. Instead of rushing to do things that can wait until later, take the time to determine what is necessary, especially if you have a limited amount of equity in your home. In other words, if doing everything you want to do is going to use all of the equity you have in your home, don’t do it unless it’s necessary in case something should develop later that cannot wait. Always allow a cushion for future use because you never know what might happen.

Determining the importance of a home equity loan

Unless you have lived in your home for a great many years or your home has increased tremendously in value, you want to be careful how much of the equity you use for things other than home repairs and improvements. Even with a low rate home equity loan, you are putting the future of your home in jeopardy because your home secures the loan. You only want to include what is important at the time in case other things come up later that need immediate attention. Of course, if you have already replaced everything in your home within the last five years including the roof, this may not be an issue of major importance. If not, then give yourself some leeway in the event something major comes up before you have repaid enough on the low rate home equity loan to build up additional equity in your home.

Advantages of a home equity loan

As long as you are careful what you include in your low rate home equity loan, you will find it advantageous to your purpose. Some things you may find include:

  • Increase in your home’s value because of remodelling or repairing
  • Lower payments on loans by consolidating high interest debt
  • Financial ability to do important things such as send your children to college or further your own education

    Disadvantages of a home equity loan

    Even a low rate home equity loan does not come without disadvantages. You must keep this in mind before you finalize your loan so that you can weigh both the advantages and disadvantages of a low rate home equity loan.

  • Decrease in the amount of equity in your home
  • Potential loss of your home if the loan goes into default
  • Loss of funds for future repairs to your home
  • Financial instability due to extra payments

    You have to be sure to weigh both advantages and disadvantages before making a commitment to a low rate home equity loan. Be assured that you are going into it knowing all of the advantages and disadvantages and have weighed them accordingly. Only after you do this should you commit to a home equity loan.

    You may freely reprint this article provided the following author's biography (including the live URL link) remains intact:

    John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the website.

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