Equity Lending

What are the advantages of an equity loan?

     Everyone likes to save money and everyone likes to reap the benefits of saving money.   Equity loans have many different advantages.  Nonetheless, before I begin to discuss those advantages and benefits, I will first explain what an equity loan is, approximately how much one can borrow, the term of an equity loan, and the APR financing rate.

    An equity loan is when you subtract your current outstanding mortgage or first mortgage loan, and subtract that number from the present market value of the home.  A consumer can borrow approximately anywhere from $5000-$75,000.  You can also stretch out the term of an equity loan from about five years to twenty-five years.  If you are a smart, educated consumer, you can shop around and find banks or even finance companies that are willing to finance 100% of the home’s equity value. 

Getting rid of debt

    Straight up, equity loans offer many advantages and benefits.  The first of these is getting rid of some debt.  In these days and times, it is almost impossible to find someone who does not use credit cards.  Credit cards are extremely popular in our society because a consumer can buy now and make payments on later.  Consequently, some do not think about what later may entail.  For one thing, credit cards have a high interest rate with some going as high as 39% based upon prior credit.  This makes for a lot of years trying to pay a credit card off, and a lot of good money thrown to bad because lets face it, most of the monthly payment one sends in to the credit card company each month goes toward the interest.  This occurs because too many consumers are unable to make more than the minimum monthly payment.  Using the equity in your home allows a consumer to pay off these large amounts of debt through doing what is called a bill or debt consolidation.  This type of consolidation gets rid of unwanted debt at a lower interest rate thus saving the consumer thousands of dollars. 

Equity loan collateral

    Another advantage of an equity loan is that your home will be used as the necessary collateral to secure the loan with.  Since one would more than likely already have a first mortgage on their home, why not use the equity left to pay off debts for about the same or sometimes even less amount of time of your first mortgage. 

Lowered interest rate

    A third advantage of an equity loan is a lowered interest rate.  As I mentioned earlier, credit card companies and even local finance companies charge a high interest rate on their money.  As a result, most of the payments made toward the loans go toward the interest.  The consumer usually wastes a large amount of money until the loan is paid off.  The consumer also wastes time, meaning the amount of time it takes to pay a debt off to a credit card company or finance company. 

Tax deduction

    A fourth advantage of taking out an equity loan is the tax deduction the consumer will receive at the end of the year.  Have you ever heard of a credit card or finance company allowing you to claim the interest you pay to their companies each year on your tax returns?  Probably not because it does not exist.  However, an equity loan allows for this.  At the end of the year, the consumer will receive a statement through the mail around tax time stating the amount of interest they have paid on their loan for that particular year.  Fortunately, that amount can be claimed on your income tax returns. 
   

Personal negotiations

A fifth advantage of an equity loan is that the consumer gets to deal with real people and have face-to-face interactions instead of going through a recorded system.  Chances are that most consumers will open an equity account with the same company who holds their first mortgage.  Or they may use a different local company to handle their equity loan.  Nonetheless, the consumer gets to talk to a real live person if there were to be some type of problem.  With credit card companies and some finance companies, consumers are disadvantaged because they either have to talk to someone over the phone, which can result in communication problems, or go through an automated phone system.  Consumers also must send their payments through the mail instead of getting that one on one interaction time.

    One last advantage of having an equity loan is improving the consumer’s credit score.  By paying off unwanted debt, the consumer’s credit score will automatically advance to a higher number.  Let’s face it, we all rely on credit at least one time in our lives.  Having an equity loan enhances the possibility to be approved for meaningful credit expenditures at a later time. 

    It should be clear that equity loans have many different advantages, from saving money to improving ones credit score. As always, one should always do the proper research required before making such a major decision regarding their finances.