Posted on: 8 February 2023
During the last year, the Federal Reserve raised interest rates seven times to slow economic growth and temper inflation. Unfortunately, the increased rates also make it more difficult and more expensive to access any money you may need to borrow. Instead of shopping for a personal loan, consider tapping into money you have sitting in the form of your home's equity. Borrowing your home's equity may make more sense in today's market. Here are a few reasons why.
1. One of The Cheapest Forms of Credit
Rising interest rates have significantly impacted the costs you pay for using your credit cards and personal loans. Because these variable rates are usually tied directly to the federal rates, they rise every time there is an increase. With the average credit card interest rate hovering above 20%, carrying a balance can become very expensive.
On the other hand, home equity loan interest rates range between 6 & 7%, making them a much better choice in this economy. Many home property equity loans also offer fixed rates versus the variable rates of other funds.
Fixed rates mean locking in your rate and not worrying about what the Federal Reserve will do in the future. Fixed rates also offer predictable payments, which are easier to budget.
2. They Are Easier To Qualify For
Home equity loans are much easier to qualify for because of the collateral your home offers the lender. Because your home secures these funds, the lending companies are not taking the increased risk of personal loans.
Most lenders will allow you to borrow a certain percentage of the equity you have in your home. The exact amount varies between lenders, but some may allow you to have as much as 90% of your home's equity.
For example, if your home's value is $400,000 and you have a $250,000 first mortgage remaining, the equity in your home would be $150,000. If your lender allows you to borrow 90%, you may have access to up to $135,000.
3. You Can Use The Money For Any Reason
The beauty of home equity loans is their versatility in using the funds. While there are rules in place that govern the tax deductibility of the interest, there are no rules about what you can use the funds for.
You can use home equity loans to upgrade your home, finance your education, purchase a vehicle, or pay off other high-interest debt. Always remember that you use your home as collateral whenever you use the funds.
Find out more about home equity loans.Share