Home ownership is an investment, but when it pays off may be up to you. If you own your own home, you have been paying into a long-term investment in real estate. It’s smart in many communities to have a mortgage rather than pay rent to a landlord every month. Your mortgage may take up to 30 years or more to pay off, but you don’t have to wait that long to see the benefits. If the value of your home is more than what you currently owe, you may be eligible for a home equity loan. This can result in a cash-out refi, giving you cash that you can use for other things.
What Is a Home Equity Loan?
There are different kinds of home equity loans to look at and compare. Lenders use a calculation using your home value and what you owe on it to see how much you could receive. They will normally take about 85 percent of your home value and subtract what you owe. That is an estimate for the most money you could borrow with your home as collateral. There are two options for how you could receive the cash-out refi payment. Some lenders offer one lump sum, which you pay back with interest, while others give you a line of credit that you can tap at any time.
Look for Fees and Hidden Terms
As with all forms of refinance, when you are comparing home equity loans, pay close attention to the fine print. Some loans demand high fees and repayment terms that may be unrealistic for your budget. The best way to benefit from your home equity loan is being able to pay it off. Check the terms to ensure that you are able to repay it in a reasonable amount of time. Make sure that you plan to stay in your home for a while. If you are unable to pay back your loan, the lender is able to foreclose on your home.
Best Ways to Use the Cash
Homeowners use money from refis for almost anything they want, and that can be either really good or really bad for your credit and finances. You can use the cash from your home equity loan to pay off high-interest credit cards, big medical bills, student loans or other high-interest debt. This will consolidate your debt and help you focus on paying everything off. Another option, of course, is using it to go on a massive shopping spree, enjoy a lavish vacation to a tropical paradise, and enjoy other short-term rewards. What you decide to use your cash-out refi on is up to you, but thinking long term will benefit your financial health and credit history.
More Benefits From Home Equity Loans
Depending on how you use your money from your loan, you may be able to build your credit score. Compare the different loans that are offered, or work with a company that partners with numerous lenders to help you narrow down the many options. This may feel like a fresh financial start. Experts recommend using the relief to your advantage by creating a budget for you or your family that can help you pay off the loan and stay debt-free.
To learn more about home equity loans, and if refinance could benefit your financial health, log on the home refinance page of Refi.com today.