Home equity is the difference between how much your property is worth and how much debt you owe on it. If you own your home, then any increase in its value over time goes toward increasing your equity after you’ve paid off the mortgage. Homeowners with sizable equity often want to tap into these funds for their personal use. They enjoy many benefits beyond the immediate cash infusion when they do so through a home equity line of credit or loan. Here are some top reasons homeowners choose to borrow against their home’s value:
1) They Can Get More Money Than by Refinancing.
People who have already paid off most of their mortgages may be surprised that they can’t just take out what they owe because it isn’t there anymore. Equity loans such as home equity loans Toronto work differently: Homeowners can borrow up to a certain percentage of the value of their home and pay it back over time. Click here for small business loans.
2) They Enjoy Lower Interest Rates Than Other Types of Personal Borrowing.
Interest rates on mortgages and equity loans align because they’re both long-term financing tools instead of short-term consumer credit like credit cards or payday loans. Borrowers who meet specific requirements may not even have to pay closing costs with an equity loan or line of credit; those that do might pay 1% or less in closing costs versus the 2% to 5% those borrowers often face with other types of personal loans.
3) They Repay Principal and Interest Over Time Rather Than All at Once.
People who borrow against their homes can take out the amount they need right away but choose to make monthly payments on what they owe. That makes it possible for homeowners to get cash faster than waiting until their house was sold or refinance.
4) They Can Cover Significant Expenses or Consolidate Debt.
For homeowners who have unusually high home equity, taking out an equity loan or line of credit may be the best way to finance major expenditures that are just beyond reach, such as home improvements, weddings, medical care, and higher education. Once these borrowers repay their loans in full, they’re likely to see a significant improvement in their credit scores.
5) Their Existing Homeowners’ Insurance Policy Will Continue to Protect Them While They Pay Back the Loan.
Homeowners who take out equity loans or lines of credit can continue to use their existing homeowners’ insurance policy until they’ve paid back the balance. This means they won’t have to pay extra upfront for a new policy to cover their home equity loan; it also reduces the odds that they’ll default on their payments and lose coverage during repayment.
6) They May Be Able to Reduce Their Monthly Mortgage Payments.
Lenders allow borrowers with home equity loans and lines of credit to repay portions of what they owe each month, just as though they were making regular mortgage payments. The difference is that these borrowers aren’t required to apply any funds toward principal unless and until they borrow against this previously untouched equity.
You will be saving money and building your credit score while you are paying down debt. These savings make it possible for you to invest more in stock market investments, which can further increase your wealth over time, not to mention future tax deductions on the interest paid! Home equity loans can provide such a rewarding financial experience that they really should be considered before any other form of borrowing.