One of the verified methods of preparing for one’s future is to buy real property that will, according to the annals of history, appreciate over time. Consider the fact that Peter Minuit sold Manhattan for $24. According to respected economists, the value of Manhattan in 2014 dollars is $1.7 trillion.
Financially, a real estate investment – given sufficient time – becomes a shrewd financial device because the investment’s value increases over the course of time. This ‘built-in’ appreciation essentially prepares homeowners for future expenses or, unexpected losses.
When should a homeowner use the equity in their home?
Is the Home Equity Loan a better choice that the Home Equity Line of Credit (HELOC)?
The Home Equity Loan
A Home Equity loan provides homeowners accessibility to their equity in the form of a lump-sum loan. At closing, the borrower receives the entire amount borrowed minus closing costs, (if applicable) and the existing debt to be paid off by equity proceeds.
Interest begins accruing immediately upon loan closing. Monthly payments include both interest and principal through the loan term.
The Home Equity loan is a smart equity loan for those who can quantify the exact amount of money they need for current debt, future expenses, or educational expenses. Home Equity Loans are available as fixed or adjustable rate products.
The Home Equity Line of Credit
The Home Equity Line of Credit (HELOC) accesses the equity in a home in a way that resembles how one uses credit cards. HELOC’s are designed to allow borrowers to reuse their approved line of credit when funds have been repaid. A HELOC is issued with a maximum amount a borrower can use at any one time. Many lenders offer borrowers the option of only paying interest during the HELOC’s access period. If the balance on the HELOC is zero, interest will NOT accrue until a balance exists.
HELOCs are a great financial instrument for consolidating current debt, making home improvements, AND, being prepared for unexpected emergencies and losses.
Tapping into your home’s equity is often a great technique for necessary cash. However, be certain that you are borrowing for a good reason. Generally, home equity products allow borrowers to use the funds as they see fit because real property acts as collateral. Don’t forget though, the collateral offered for home equity loans is literally the roof protecting your family each day.
Due to the Tax Cuts and Jobs Act (TCJA – 2017), borrowers are advised to contact a tax professional
regarding revisions to IRS interest rate deductibility guidelines.