Given that the costs of college are, despite your best efforts, you may come up short when it’s time for your children to start their pursuit of higher education. If you have sufficient equity on your home you can resort to it to obtain the necessary funds. Home Equity Loans and Lines of Credit A home equity loan is secured by the equity you have built up in your home and can be structured as either a revolving line of credit or a second mortgage. When you choose to obtain a revolving line of credit, the lender establishes a credit limit that depends on the amount of equity you have in your home and your ability to make payments.After the credit limit is established, you can access as much money as you need, up to your limit, whenever you need it by writing a check or using a credit card. Interest rates for revolving lines of credit are variable and tied to an index, but may be guaranteed for a time. Monthly payments will vary depending upon the outstanding balance.If you choose to take out a second mortgage, you’ll borrow a fixed amount, no more than 80 percent of the equity in your home. That amount is transferred to you in full when you close. You’ll repay that amount over a fixed term, just like on your original mortgage. Home Equity Loan Benefits Home equity loans include tax-deductible interest and, in most cases, a more favorable interest rate than traditional loans. However, it also puts your home at risk because it serves as collateral for the loan. You’ll also have to pay closing costs, points, and other fees to obtain the loan.The interest rate charged for home equity loans is considerably lower than other sources of finance. It can be even lower than certain private student loans. And since it’s a secured loan, it provides a lot of flexibility in terms of repayment schedules and monthly installments. As regards to affordability these loans get the highest grades due to the combination of low rates and long repayment schedules.Searching The Net for The Right Lender Before you take out a home equity loan, shop around. Compare interest rates on home equity loans with the cost of other options like financial-aid loan programs, to see if a home equity loan is right for your family. But if you decide to go for a home equity loan, don’t rush in either. Search the net for different home equity loan lenders and request loan quotes.With all this information you’ll be able to compare the offers and find the lender that best suits your needs and the loan that best adjusts to your budget. The lowest rate loan is not always the best loan for you; if the repayment program is too short you may not be able to repay the loan due to high monthly payments.
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