A home equity loan is a great option for homeowners who may need to borrow against their home’s equity for home renovations and major repairs or simply just need cash for other large personal expenses. As a Louisville homeowner, it is important to shop around and compare your options. A good place to start is by learning home equity loan basics with our guide on home equity loan and home equity line of credit.  

Home Equity Loan Basics

A home equity loan definition can be summed up simply as a type of second mortgage on your house. It is very similar to your primary mortgage. It has a fixed interest rate and is repaid by fixed monthly payments. If you do not pay the home equity loan, your lender can foreclose on your Louisville house.  

Home equity loans are best for large, one-time payments or you desire to consolidate other debt.

Home Equity Line of Credit Basics

A home equity line of credit (HELOC) is a line of credit provided by your lender up to a maximum amount. You withdraw funds from the HELOC as needed and can not withdraw more than your designated maximum amount. A HELOC is just like any other revolving line of credit. A home equity line of credit requires monthly payments for a specific time period determined by your lender. When the repayment time period is up, you must pay off the balance.

Home equity lines of credit are best for recurring or multiple expenses such as payments made during an extensive renovation.

Pros and Cons of a Home Equity Loan and Line of Credit

The pros of securing home equity financing:

  • On average, up to 85% of your home’s equity can be secured through a home equity loan.
  • Interest rates are almost always lower than a credit card or unsecured bank loan.
  • Interest paid can be tax deductible.
  • Oftentimes, you can consolidate the home equity loan with your primary mortgage.
  • A HELOC is withdrawn on an as needed basis, so you only pay monies back on what you withdrawal.

The cons of securing home equity financing:

  • Interest rates are higher for home equity financing than the primary mortgage.
  • When it comes time to sell your Louisville house, home equity loans require you to pay all closing costs and fees associated with the sale of your home.
  • Home equity financing is secured by your home and therefore is susceptible to foreclosure when you cannot pay the multiple mortgages on your home.
  • Consolidation will increase your monthly mortgage payment accordingly.  

For more information about home equity financing please visit the Federal Trade Commission’s website about home equity loans and lines of credit. Always research potential home equity financing lenders in order to find the best interest rate and solution for your specific needs.

Oftentimes homeowners decide on a home equity loan to pay for the much needed repairs in order to sell their Louisville house. While there are benefits to a home equity loan and line of credit, both options bring about numerous cons that only add to your financial burden. SnH Homes can buy your Louisville KY home, as is, without the need for repairs and major renovations. SnH Homes pays you cash fast and does not charge real estate commissions. Contact SnH Homes today for answers to all your questions.