Home equity loans are a great way to use your investment in your most valuable asset – your home. Because it is based on the paid up home value, this kind of loan can make a huge sum available to you for large and urgent expenses. Although a home equity loan puts your home at risk, it is worthwhile if it will help you meet unavoidable expenses.
For those who have a low credit score or who have just started their credit history, loans without collateral might be hard to come by. A home equity loan is backed by the home, which means lenders will be willing to overlook a low credit score. After all, if you default on the loan, they can always sell your home to make good on your outstanding dues.
It is a good idea to go for a home equity loan when you have a major portion of your home value paid up and have several small debts. In such a situation you can use your home equity loan amount to consolidate all your other debts into a single one. With just one loan to keep track of, managing your debt becomes much easier. You can even negotiate for better rates because your home is being placed as collateral. If this arrangement works out, you can end up saving a lot on interest.
If you have some large expenses coming up in the near future, then a HELOC, or a Home Equity Line of Credit can be useful. These are home equity loans which give you an open line of credit rather than outright cash. You can draw upon the available credit when the need arises. Whether you opt for a typical home equity loan or a HELOC, make sure you are using the money only for important expenses.
