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Home equity loans and their uses
Debt Consolidation - Debt consolidation is the term used to describe the replacement of several high-interest loans with a single loan at a lower interest rate and a home equity loan is perfect for this purpose. The average American household now carries nearly $10,000 in credit card debt at interest rates that often approach 30%. The poor economy of the last five years has made this situation worse, and borrowers in many households struggle just to make their minimum credit card payment each month.
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Consolidating several high-interest loans into a single lower-interest loan allows the loan to be paid off sooner. If the consolidation is done with a home equity loan, then the interest paid on the loan is deductible from Federal income tax, which represents a nice bonus for the borrower. Debt consolidation is one of the key tools used by debtors who are trying to stay out of bankruptcy.
- Home Improvement- Perhaps the most common use of a home equity loan is improvement to one’s home. Studies show that remodeling a kitchen or bathroom or adding a deck or patio can increase the value of the home. Increasing the value of the home adds to the home’s equity, which works out as a nice perk for the homeowner. Kitchen remodeling is often the best investment; the average kitchen remodel adds 85% of the cost of the remodeling to the value of the home. Lenders are usually willing to lend money for home improvement purposes, as such loans tend to have a very low default rate.
- The type of home remodeling project will determine which type of loan is best for the project. If a contractor is hired to do a specific job for a specific price, a term loan will probably work best. If the remodeling project is an open-ended do it yourself type job, a line of credit might work better, allowing the homeowner to draw funds as needed on an ongoing basis.
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- Student Loan Consolidation - Another frequent use is self-improvement in the form of advanced education. The cost of a college degree is higher than ever, and home equity loan is a great way to meet those expenses for those who own their home. The tax deductibility of the interest may make the home equity loan a better choice than other types of loans, although the rates for Government funded student loans can be quite competitive. Those considering borrowing against their home for educational purposes should examine all of their options carefully. For long-term educational needs, a line of credit may work well.
- Medical Bills - Millions of Americans lack sufficient health insurance, and it does not look like that situation will change anytime soon. New changes in Federal bankruptcy law may make it harder for those with medical emergencies to file for bankruptcy, so a line of credit may be the best defense against emergency medical needs, as the homeowner can arrange for the loan before they need it. The line of credit is at the ready 24 hours a day, and no payments are necessary unless funds are drawn against the account. For a sudden illness that may lead to long-term disability, a line of credit can be a lifesaver.
If you have a mortgage with a high interest level, you may wish to think about refinancing your home loan. You may consolidate your debt and reduce your monthly financial outlay. Ameriquest Mortgage can help you refinance now.
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