Mortgages

Is Now the Time for a Home Equity Loan?

Right now, interest rates are at record lows. This means that if you are going to borrow money, now is a good time to do it. (It is also a good time to pay down debt, since more of your payment will go to principal.) If you have been looking for a good time to make home improvements, this might be it, depending on your individual situation. Home equity loan rate and HELOC rates are relatively low, and you can borrow against your home for a fairly decent rate.

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There are some things to consider, though, before you get a home equity loan. Here are some stumbling blocks to getting a home equity loan right now:

  • Adequate equity: The first hurdle to clear is having enough equity in your home to get the loan. Gone are the days when banks were happy to lend you money for 125% of your home’s value. Now you will be lucky if they will lend you money to the point where you reach an 80% loan to value ratio. If you do not have the equity you need, you will not get the loan.
  • Good credit: You need good credit in order to get the best rates on a home equity loan. You may be approved for a home equity or a HELOC if you have sufficient equity and fair credit. However, you may not get the best interest rates. Consider your credit score before applying for a home equity loan.

You should also consider what you are borrowing the money for. It is rarely a good idea to borrow money just to borrow money. Remember that with a home equity loan, you are securing the loan with your house. Making home improvements to the house is usually considered a reasonable use of a home equity loan. In some cases debt consolidation might be a desired use for the money as well, but you need to be careful: You don’t want your credit card debt turning into the reason that you lose your home.

In the end, you should carefully consider your options, and think about why you are using the money. If your financial goals would be advanced with a home loan, now might be a good time to get one. Low interest rates won’t last forever.

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