Articles About Finance And Refinancing

How Beneficial Is A Home Equity Loan?

Before I answer the question, let me try and explain what a home equity loan exactly is.

A home equity loan is basically a loan based on the equity in your home. It's simply an amount of money you can borrow as a homeowner against the equity in your home.

Most people consider the equity in their homes as a safety net and something they can fall back on rainy days, when a family illness or a job loss or an urgent personal expenditure occurs without forewarning. A good policy for debt management is to focus on your home's equity. It's always best never to let your debts exceed the equity at any time.

Coming back to the question, how beneficial is a home equity loan?

I would say that it all depends on how well you can manage your money. If you are a prudent spender and spend the proceeds from the loan on items that are really very important and carry a higher interest rate, your home equity loan can prove extremely beneficial.

For instance, home improvements or college tuition fees are generally quite expensive and the pay-off periods are quite long. By using your equity, you will be able to write-off your purchase interest on your federal and state taxes.

You could also payoff high interest credit card bills and personal loan debts. But you must ensure that once the debt has been repaid you should not accumulate any more credit card debts.

Home-equity loans are often the easiest source for cash. The interest rate on a home-equity loan, though much higher than that of a first mortgage, is considerably lower than on credit cards and other loans.

One of the most common reasons that people borrow against the equity of their homes as against a fixed rate home equity loan, is to pay off outstanding credit card balances. The interest paid on a home-equity loan is also tax deductible. So, by consolidating debts with the home equity loans, as a borrower you will get a single payment, a lower interest rate and will also be able to avail of the tax benefits.

Home equity loans are quite beneficial for the lenders too. The lenders after earning interest and fees on the borrower's initial mortgage, earn even more interest and fees. In case of a borrower defaulting, the lender will keep all the money earned on the initial mortgage and all the money earned on the home equity loan. The lender also gets to repossess the property, sell it again and restart the cycle with the next borrower.

Home equity loans can be beneficial tools if you are responsible and prudent as a borrower. If you have a steady and reliable income and are quite sure that you will be able to repay the loan amount within its tenure, its low interest rate and tax deductibility of paid interest make it a practical option. Fixed rate home equity loans can help cover the cost of a single, large purchase, like an unexpected medical bill or sudden home improvement.

The greatest drawback of a home equity loan is that it sometimes seems to be a gravy train for a borrower who has the bad habit of spending, borrowing, spending and going deeper into debt. The habit of taking a loan to repay an existing debt and free up additional credit, which the borrower then uses to make additional purchases, has been termed as 'reloading' and can be quite a dangerous phenomenon.

Reloading creates an unending cycle of debt that often misleads borrowers to turn to home-equity loans offering an amount worth 125% of the equity in the borrower's house. This type of loan often comes with much higher interest rates since the borrower's credit worthiness is low and since he has borrowed more money than the house is really worth. Apart from this, the interest paid on the portion of the loan that is over and above the value of the home is not tax deductible.

If you're serious considering borrowing against the equity in your home, its best to be conscious of the fact that you are attaching a new lien on your home and heading nearer to the risk of foreclosure. If you do not make your payments on time, the lender is entitled to foreclose on your home. It's also best that you don't accumulate more debt than you can handle. Always remember that your total debt should NEVER exceed your homes total equity. It would be considered quite wise to avoid lines of credit unless you have the discipline to make the principal payment on time and to evaluate the tax benefits minutely.

How you plan on using the equity in your home is also an important consideration. If you need the money for home improvements, then you are enhancing and appreciating your home's value. If you need it to go on a holiday or to buy a new car or for any other reasons that will cause more depreciation that appreciation, you could be risking your equity and inviting the risk of owing money far beyond the average 15-30 year mortgage.

In a nutshell, a home equity loan can be quite a beneficial source of finance, as long as you consciously and cautiously decide to make it work for you.

Michelle Hawkins is Marketing Manager of http://www.myratesfinder.com Check out best home equity loan deals at http://www.myratesfinder.com

Other Article Sites

findabook.com  moneycd.info  a-mortgage.info   about-lemon-laws.info  aboutstudentloans.info
all-about-publishing.info  auctions-articles.info  bestcollege-university.com  bestispconnection.com
biblefolder.com  blogger-website.com  books-used.info  brokers-guide.info  buywindows.info  cable-dsl.info
career-miner.com  carpel-tunnel.info  cashinaflash.info  cashloanreviews.info  casinobell.com  chat-house.info
clearmycredit.info  collegeloantips.info  crones.info  depression-articles.info   dirnic.net  dishguides.info
divers-below.com  expodog.info   financewizz.com  fire-insurance.info  getgood.info  handleit.net   it-idea.info
health-supplies.info  hosting-right.com  insidealert.com  insurance-facts.info  jobs-employment.info
justgood.info  lookgold.net   lowcost-travel.info  money-source.info  myhostzone.info  numisblog.com
peoplesearchfinder.info  pr-articles.info  realeas.com   refinancing-guides.info  spyware-remove.info
telelot.info  the-law.info   toppaid.info  travel-deals.info  travelcorrect.com  wedding-guide-site.com
your-blog.info  your-credit.info

MORE ARTICLES:

Mortgage Mailing Lists - Are They Useful?
Mortgage Mailing Lists contain relevant information pertaining to deed transactions compiled monthly in the United States Mortgage List information available can include loan amount, loan date, lender names, loan to value ratios (LTV), FICO Scores, and other relevant criteria to target responsive refinancing prospects

Credit Card Expert Says January is Good Time to Assess Transfer
The website creditcardexpert.co.uk, a comprehensive guide highlighting the best available deals and providing general credit card tips to consumers, said today that consumers should check out good credit card deals for transferring post-Christmas debt.

Meeting Credit Card Requirements
Believe it or not, when you start your hunt for your first piece of plastic, it?s actually not as hard as you think. People often tend to think that getting your first credit card is really tough. After you read our quick list, you?ll realize that applying and getting approved isn?t as hard as you think.

Computational Finance as a Professional Tool for Financial Graduates
One of the most important tools that financial graduates need for professional success is computational finance. This study combines computer analysis, mathematics and financial knowledge to assess the total risk of specific types of investments. Computational finance is used a variety of situations in financing to increase information available to clients who are concerned about a volatile economy. There are numerous jobs available for financial graduates conversant in computational finance.

Mortgage Reduction Solutions
USA ECONOMIC CONDITIONSToday's sluggish economy has left millions of people struggling to financially make ends meet. Lou Dobb's coined phrase "Assault on the Middle Class" continues.

Best Mortgage Rates and ARMs
When you go to get a mortgage you may start hearing the term option ARM thrown around, and you may wonder what one is exactly. An option ARM usually has two primary characteristics: interest rates adjusting monthly and payments adjusting yearly. Traditionally, a borrower can choose the size of the payment that they are required to make. The way you choose is you can usually pick whether you want to pay interest only on your loan or, if you want to pay a minimum payment.

Finding a Loan With Bad Credit
No matter what your credit history is the simple fact is that at some point in your life you will need a loan. If you have a few black marks on your credit report and you are feeling that your bad credit will not enable you to qualify for loans, do not feel despair because there are banks that will lend to people in your situation.

Real Estate Mortgage Loans Online
Online real estate mortgage loans enable borrowers to be sure they are getting the best financing rates. By comparing online quotes, you can save time and money with no risk.

Home Refinance Popular When Mortgage Interest Rates Drop, According to ChristiaNet Poll
Home refinance such as home loan refinancing, mortgage interest rates, equity loans, bad credit lenders and debt consolidations are some of the home refinance related articles at http://www.christianet.com/homerefinance/.

Why You Should Finance Investment Property Via Debt
Are you looking to get your feet wet in real estate but don?t know how to begin. If you ask the more creative and experienced of investors, they would suggest that you look for financial institutions that finance investment property. That is, the golden rule of real estate is to use other people?s money to leverage your investments.

Beat the Credit Crunch With Obelisk Private Finance
Obelisk Private Finance provides complete investment, mortgage and savings solutions to ensure clients beat the squeeze, minimising costs and maximising returns.

Holy SIte for Sale: Privately Held Pilgrimage Site is Being Sold to Finance a 'Higher Calling'
Resurrection Tree Ranch, a historic ranch and holy site, is being offered up for sale. The Peterson family, owners of the ranch in Lewis County, Washington, are selling the site to finance the "Campaign for Energy Independence," an initiative they are spearheading to wean America off of foreign energy by 2016.

Choose A Credit Card
"Take two years to pay on appliances!" "Drive a new car today -- interest free!" "Swipe and earn your purchase free!"

Get A Low Interest Home Improvement Loan
You want to make home improvements but you do not want to spend that much on financing your home improvement project? There is a financial product just for you: Low Interest Home Improvement Loan. This kind of loan features low costs by taking advantage of the equity on the home you are about to improve among other benefits.