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Last updated on September 8th, 2021 at 03:23 pm
According to data across the country, there is an estimated $8.1 trillion in home equity. This equity can be tapped by borrowers to remodel, renovate, or use for other projects. This has resulted in the rates of home equity loans dropping.
According to Bankrate, by mid-August, the average home equity loan rate was 5.33%, and some banks are offering rates under 3%.
Howard Dvorkin, a certified public accountant and chairman of Debt.com said that as borrowers can lock in a rate with a home equity loan, this type of debt is attractive because of the low-interest-rate environment.
As banks have tightened their approval standards and some lenders even temporarily suspended offering home equity loans these loans are very difficult to secure. There still are many lenders offering home equity loans to homeowners.
The rates offered to vary significantly depending on credit score, the home equity amount, and the amount you are looking to borrow, according to experts now is still a good time to take advantage of the low-interest rate and use it for the home equity loan.
Have a clear purpose to take the home equity loan
Dvorkin says the mistake many people make uses it for non-home-related expenses, like for a vacation, buying a new car, or other investment.
It takes years to build up equity in a home, so it should be used to finance something that adds future value like home improvements, deploying the money borrowed should be deployed into things that will appreciate Dvorkin says.
Brian Walsh, a certified financial planner and senior manager of financial planning at SoFi said that the purpose is important because interest on a home equity loan can be tax-deductible unless it’s used on the home.
Along with the interest rate consider other things
Home equity loans allow many homeowners to undertake home improvement projects or tackling debt, says Walsh.
Along with low interest rates borrowers should understand the terms of the loan, and what could trigger a default or any potential changes to the terms.
Because the equity in your home is the collateral for the debt so borrowers should consider a lot of things along with their financial goals to make a thorough decision.
Reference Source: MarketWatch
