In times of economic uncertainty and high inflation, many people may seek additional means to make ends meet. This could take the form of a new part-time job orOriginating or means taking out new credit or . For homeowners, their biggest investment can be a source of financial support Or a home equity loan.
Home equity loans work like a second mortgage. Owners simply borrow against the amount of equity they currently have in their home. Lenders typically require at least 15% to 20% equity in the home, but other than that, the money can be used as the homeowner sees fit. It has to be repaid in monthly installments just like a regular mortgage.
But is a home equity loan worth it or should homeowners turn to other options instead? This is what we will discuss below.
If you’re a homeowner considering a home equity loan, explore your home equity loan options here or use the table below to learn more.
Home Equity Loans Worth It?
Every homeowner’s personal situation and financial goals are different. That said, here are three reasons why a home equity loan might be worth it to you:
Interest rates are low
Because you’re accessing the money in your home — and because, in theory, you’ve already proven yourself creditworthy — you’ll typically be able to secure a lower interest rate than a home equity loan if you’re looking for other forms of credit. Credit card interest currently hovers around the 15% to 20% mark, while personal loans hover around 10% to 11%.
By comparison, you can get a home equity loan with an interest rate of 8% or less, depending on youand application time history. Just remember that you have to pay So account for that extra cost when comparing all of your potential credit options on a home equity loan.
If you think a home equity loan is worth it, start by researching your options online or in the table below.
It can be tax-deductible
If you took out a home equity loan to make home repairs, renovations or improvements, you may be able to deduct the interest you paid on the loan when it’s time to file your taxes.
“Home equity loan interest and lines of credit are deductible only when the borrowed funds are used to purchase, construct, or substantially improve the taxpayer’s home that secures the loan.” The IRS Says “the loan must be secured by the taxpayer’s principal home or second home (qualified residence) and meet other requirements.”
If you plan to use your loan for an IRS-approved reason, you’ll be covered when you file your return. But don’t use it for other purposes and expect to get the same discount.
“Generally, you can deduct home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 8a,” the IRS says. “However, any interest shown in Box 1 of Form 1098 from a home equity loan, or a line of credit or credit card loan secured by property, is not deductible if the proceeds are not used to purchase, construct, or substantially improve. Qualifying home .”
It has a fixed interest rate
Any type of loan or credit can be stressful with fluctuating interest rates. While this can be convenient when rates are low, it can become difficult to navigate as rates rise. Fortunately, unlike some other credit options, a home equity loan comes with a fixed interest rate, making it easier for borrowers to budget each month.
Rates will depend on a variety of personal factors, but once a low rate is secured, borrowers can rest easy knowing that they will pay the same amount in the closing months of the loan as they paid in the first month. .
Both HELOCs and home equity loans offer homeowners a unique opportunity to use their homes as a source of income. Home equity loans, in particular, can be advantageous for several reasons.
Because of the low interest rates and favorable tax deductions (if used for qualified purposes), a home equity loan can be worth it to many homeowners. And unlike other credit types with fluctuating interest rates, home equity loans come with a predictable and reliable fixed interest rate.
Explore your home equity loan options here now and see if it’s worth it for you!