Most lenders require some form of collateral to secure a loan for a substantial amount of money. Home equity loans use the value in your home as collateral. If you are considering a home equity loan, consider these five benefits.
1. Predictable Payments
Home equity loans in Ontario usually carry a fixed interest rate, which means that your interest and payments will remain the same over the life of the loan. This can make financial planning easier because you can count on your loan payment being the same every month. However, if you decide to sell your home, you will need to pay the remaining loan balance in full.
2. Lump-Sum Payment
When you take out a home equity loan, you receive the amount of the loan as one lump-sum payment. This makes this type of loan useful for financing a large purchase, such as a new car.
3. Lower Interest Rates
The interest rate offered on these loans is usually cheaper than the rate offered on credit cards and other unsecured forms of debt. This lower interest rate makes home equity loans a popular choice for people who want to pay off high-interest debt, such as credit cards. However, the drawback to paying off unsecured debt with secured debt is that you risk losing your home if you are unable to pay back your loan.
4. Home Refinance
If you took out your current mortgage at a time when interest rates were high and now they are lower, or your credit has improved significantly since your loan was originated, it may be beneficial to refinance your home at a lower rate. A home equity loan allows you to use the equity you have built up as collateral for a new mortgage with a more favorable interest rate.
Many types of consumer loans, such as mortgages and auto loans, can only be used for one specific purpose. A home equity loan can be used for just about anything you want. Whether you want to start a business, purchase an investment property, or go on a trip around the world, you can use your home equity funds.
A home equity loan can be a useful tool for consumers who need to make a large purchase or refinance high-interest debt. However, because you are putting your home on the line, it is important not to borrow more than you can repay.