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Home » Long Term Cash » Home Equity Loan
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Home Equity Loan
What is a Home Equity Loan? A home equity loan is basically like taking another mini-mortgage against your property. If you have enough equity in your home (your home is worth a lot more than you own on it), you can pull some cash out through a home equity loan or home equity line of credit.
What is the difference between a home equity loan and a home equity line of credit? A home equity loan is usually “close ended” – you get a lump sum when you take the loan out and you can’t borrow anymore. A line of credit is “open ended” – it is basically like a credit card that is backed by your home equity, so you can typically get much lower rates than a credit card. With a home equity line of credit, you can pull money out up to a certain limit, and you only pay interest on what you borrow.
Just like refinancing, the cash that you pull out of your equity is 100% tax free (at least for now). This is because it is not considered income; it is classified as a loan – something that you have to pay back eventually. This is just another perk to cashing in on your home equity.
Here are a few pointers to consider when setting up a home equity loan or home equity line of credit:
- Remember that the monthly payments are in addition to whatever you are currently paying. If you are struggling to afford your monthly mortgage payments to begin with, maybe getting an equity loan might not be that great of an idea after all.
- Spend your money wisely. Taking a big home equity loan out to go on vacation isn’t exactly the best investment decision you can make. Taking out a home equity loan to re-do your kitchen or send your kids to college makes a little more sense.
- If used correctly, a home equity loan could help you get out of a financial crisis. If there is a medical emergency, taking out a home equity loan to foot your medical bills could get you out of a tight spot while preserving your credit. If you lose your job, having a home equity line of credit already established could help spot you some cash until you get back on your feet. Just keep in mind that you still have to apply and be accepted for an equity loan. If you already lost your job, it will be much more difficult to get that loan.
If you are considering getting some quotes for your home equity loan or line of credit, start by taking a look at some of these online resources:
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