Do you need to pay for a major expense like your child’s college tuition or a brand-new kitchen renovation? If so, you may have to look no further than to your home for funding. Depending on how much equity you have in your home, you can borrow against it at a low interest rate, and the interest payments you make on the loan are generally tax-deductible. Or are you struggling to manage your outstanding credit card balances? If approved for a home equity loan, you may choose to pay off high interest rate credit card balances with funds from your home equity loan.
What Is a Home Equity Loan?
A home loan is much like your mortgage, but smaller. You can generally borrow an amount up to 80% to 90% of the value in your home. The math breaks down like this: if you still owe $150,000 dollars on your mortgage loan, and your home is worth $500,000, you have $350,000 of equity in your home. It is unlikely that lenders would lend you that full amount, but you might be able to take out a loan for $300,000 if the lender allows you to borrow 90% of the value of your home. That money would be given to you in one lump sum that you can pay back in regular monthly increments just like you would with your primary mortgage loan. This new loan has its own interest rate, which is usually a fixed amount. You also have a set number of years to pay it back and a monthly payment that stays the same until the debt is cleared. This option allows you to budget your income better, and make sure that you can meet the payments each month.
Benefits of a Home Equity Loan
- Lower Interest Rates: Home equity loans typically have much lower interest rates than credit card annual percentage rates (APRs). This loan is “secured” by your home’s collateral, giving lenders confidence in your ability to pay your loan obligation. Lower rates typically come from lower risk.
- Potential Tax Deduction: 100% of your home equity loan interest payments may be tax deductible. This provides you with a great advantage, as many credit cards do not provide this feature.
- Cash Payment: Unlike lines of credit, a home equity loan provides a lump sum of money. This large amount of money allows you to take care of piled up medical bills, contractor costs, or other big expenses at one time.
- Easier to Manage: Home equity loans are a great option for people who want to keep their mortgage and receive cash in a lump sum. It is easier to pay off a lot of other loans and expenses and have only one bill to manage.
When Should You Use Your Home Equity Loan?
There are many ways to use your home equity loan. You can use it when you are ready to renovate your home which allows you to reinvest in your property value. This is great for people who want to create an addition for their growing family, or are finally ready to design their dream kitchen. Renovations increase the value of your home, so a home equity loan will provide you with the funds you need to get the job done.
Home equity loans are also good for debt consolidation. If you are struggling to pay off your multiple credit cards and tired of seeing high interest rates increase the amount you have outstanding, home loans can help you consolidate your debt and simplify your finances. This is because home equity loans provide a lower interest rate than credit cards so you can lower your monthly payment and manage your debt in one payment. Lastly, home equity loans are also commonly used to pay for major expenses or life events, including medical bills, a wedding, student loans, or an unexpected tragedy.
Applying for a Home Equity Loan? Get Help from LUSO Federal Credit Union
If you are looking for a home equity loan in Hampden County and the surrounding areas, LUSO Federal Credit Union can help you. We provide a number of loans to our customers to suit their individual needs. We offer fixed rate home equity loans, and we can also help you manage your finances to get in control of your situation. Our professionals can help you assess your debt and provide effective solutions or loans to keep your credit score up. Our multitude of services include mortgage advising, credit card debt consolidation, saving for future goals, and setting you up with the loans you need. In person services are available in Wilbraham, and Ludlow, Massachusetts. Please contact our Ludlow branch at 1-(844) 587-6328, or our Wilbraham branch at 1-(800) 808-5876 to learn more.