When it comes to accessing extra cash, there are a few options that you may be considering but aren’t completely sure if they’re right for you. A home equity loan can be a very positive option for helping you get the cash you need but it’s important to be aware of both the pros and the cons.
Pro: lower interest rate than other types of loans
On your credit cards and lines of credit, you will be paying a higher interest rate than you would on a home equity loan. This is because you are using your home as an asset to secure against the funds you are borrowing.
This means you will pay less in interest over the term of borrowing.
Pro: fixed interest rate
Sometimes interests rates can go up and down – especially on unsecured lines of credit. When you decide to get a home equity loan, you will pay the same interest rate for the whole term of borrowing. This means you know your costs up front.
Pro: you can use the money how you want
There are no rules when it comes to how you spend cash from home equity loan. If you want to use it for renovations or to pay off debt or help your children pay for post-secondary you can do that.
As long as you have the equity in your home and are able to make the payments on the second mortgage you can do whatever you want with the money from the second mortgage – it’s completely up to you.
Con: your home is used as collateral
If you stop making payments on this loan, just like with a primary mortgage, the finance company that gave you the money could put a lien on your home or even force it into foreclosure.
While your intention is to pay this back, it is something to consider as it’s much different from credit cards where there is no collateral needed.
Con: it’s a fixed payment
With credit cards and lines of credit, your payments are little flexible in that you can usually lower your payment as long as you’re covering the minimum interest due.
With a home equity loan, your payment will always be the same as it’s an installment payment and not revolving credit.
Depending on how much you’re borrowing you will want to make sure you can budget each month for that amount of money.
Contact us today
If you think that a home equity loan may be right for you, then call us today to speak with one of our brokers.
