Home equity loans are a special method of financing that can be a financially responsible way for homeowners who are current on their mortgage to:
- Finance home improvements
- Consolidate high interest debt
- Pay for education, medical bills, and more with low interest home equity loans
- Provide short term financing without the risks associated with credit card debt or other borrowing methods
Home equity loans are often particularly effective for homeowners who have seen substantial appreciation in the value of their houses, but don’t want to sell the property to buy another one. Home equity loans are an effective way to ‘tap’ the value of your home equity without having to sell the property.
The question that many homeowners have is whether or not it’s a good idea to take out home equity loans, and the answer to this depends on your financial situation.
In St. Louis, the loan officers at Jefferson Bank can evaluate your personal situation to provide you with tailored advice. Call our St. Louis bank today at 314-621-0100 to set an appointment for a meeting or to get answers to your questions. You can also send any questions you have about home equity loans to us through the contact form on our website.
The Right Way to Approach Home Equity Loans
In general, the most effective way to use home equity loans is on something that improves your financial situation. For example, using home equity loans to finance home improvements can be more effective than using savings. The improvement is likely to enhance the value of the home equity that secures the loan and the interest on the loan may be tax deductible.
Another good way to utilize home equity loans is to consolidate higher interest debts such as outstanding credit card bills. This can easily improve your monthly cash flow situation quickly.
When Home Equity Loans Can Be Risky
However, home equity loans are not right for everyone. For example, these loans can be risky if your household cannot support an additional debt load. While the loan can equal up to 85% of the assessed value of your home, if you fall behind on payments, you could lose the property through foreclosure – much like if you fall behind payments on your mortgage.
For this reason, home equity loans may not be a prudent way to finance increased consumption that’s not also offset by an increase in your household income.
Also, home equity loans can be riskier for borrowers living in areas where the real estate market is on a prolonged down trend. Home improvements financed by home equity loans may offset the overall trend of the market and help you to sell your home for a better price than you’d otherwise be able to, but such homeowners will not be able to realize as much of a benefit from home equity loans as those who live in an area with appreciating real estate values.
Is a Home Equity Loan Right for You?
For more help determining if home equity loans can improve your life, call us at 314-621-0100. You can also use our secure online contact form to submit your questions and learn more about if a home equity loan is right for you.