Home equity loans – profiting from your equity
When my parents finally bought our house partly from the savings that they have been able to raise from their respective jobs, they said that they finally felt a level of contentment and security in their lives. They said that they never have to worry about rent or lease contracts, or deal with landlords for repairs or complaints.
My dad proudly declared that he can just repair any problems that we encounter with the house, from carpentry repairs to plumbing (we let him because he enjoys being the handyman). My mom, on the other hand, has made the whole house her playground, constantly experimenting with draperies, furniture arrangement – the whole interior design from the bedroom down to the basement (yes, the basement).
House = Fun
We love to see our parents finally have some fun. And buying a house is one of the most effective ways of bringing joy into their lives. This happens, not because a house is a proverbial happy pill, but simply because buying a house relieves a lot of the pressure that is associated with staying in a house that is not your own – increasing rent, noise from other neighbors, security issues, and the inability to repair problematic fixtures or sections of the house. With a house that you can call your own, you can do whatever you want to do, decorate it however you want, and you also feel more secure and happy.
Acquiring an Asset
Perhaps the biggest benefit of buying a home is the fact that you not only purchase a domicile you also acquire an asset, and if we listen to what financial experts say, it is probably one of the best assets to acquire. The reasons for this are quite simple. First, it is an asset that you can actually use. In fact, you use it 24 / 7. Secondly, a house is an asset that accumulates more value over the years, especially when it is well maintained and significant improvements are made. More importantly, as you lessen the total amount of money you owe on the house’s mortgage the equity of the house also rises. This, in effect, also increases its value.
Home Equity
I have mentioned a number of benefits that having your own house gives you. But one particular benefit of a house comes into play when there is a need for a sudden influx of money. Because of the equity that the house acquires through the years, you can now use your house in order to make a home equity loan.
A home equity loan is quite similar to other loan instruments offered by banks and lending institutions, the only difference is that the loan is secured by a second mortgage on your house. In other words, your home is used as a collateral in covering the risk presented by loaning money out to the lender (usually the owner of the house). Under this type of loan, a set or predetermined amount of money is given as a loan over a set period, as opposed to being a revolving credit line.
Advantages
A home equity loan brings with it a number of significant advantages. First, the interest rates imposed on a home equity loan are significantly lower because the risk involved is also lower. This can be attributed to the collateral that is used to guarantee the loan – your house. Second, the home equity loan applicant can choose between variable or fixed rate interest rates, which provides a level of flexibility depending on your capacity to pay. Probably the best advantage of a home equity loan is that the interest paid on this type of loan is tax deductible, which makes it less of a financial burden.
Many home owners actually take advantage of their ability to draw on a home equity loan in order to pay off important projects that need a significant sum of money. Among the more common reasons home owners get the loan are for the college education of their children, extensions or additional improvements to their house, to take a dream vacation, buy a second property, or buy a new vehicle for the family. These are all legitimate reasons and, if you think about it, a good way of spending the money that you get from the loan.
Find out how to calculate a home loan here....