Housing Mortgages 101: Are They Right For You?

There are many benefits to owning your own home, the biggest one being that it allows you to raise equity instead of sending a rent payment to an landlord. And having this equity means that if unexpected expenses arise, you can access certain funds in the form of home-backed loans.

Of course, getting a home equity loan is not something you should do casually or out of whim. But if you do your research, understand the terms of your loan and have a solid plan to repay it, you can use home equity loans to your advantage.

What is a home equity loan?

You’ve probably heard of home equity loans referred to as’ a second mortgage. ยป This term is used because you use equity in your home as collateral for the loan, which means that if you default on the loan, the financial institution may take your home to pay off the debt. Mortgage equity loans are based on the current market value of your home and the balance owed on your mortgage. These loans are usually fixed rate, while home equity lines of credit have variable interest rates.

What are the benefits of a home equity loan?

Because you use your home as collateral, home equity loans are a form secured debt, while things like credit cards are not secure. Unsecured debts have no collateral, so they are usually accompanied by higher interest rates. This means that a mortgage is likely to come with a lower interest rate, which means your money goes further. Mortgages are for a fixed amount and are accompanied by fixed monthly payments, facilitating planning and budgeting.

What about the disadvantages?

You should always understand the risks and conditions of any debt you take on, regardless of the form. Like all loans and mortgages, home equity loans have some disadvantages to be aware of. For example, if you want to get a lower interest rate on a loan, you must first refinance your home, which means extra steps and costs to obtain refinancing. And if you fall behind on your payments, you could end up losing your home. In addition, if the value of your home decreases, even if the cause is out of control, such as a recession in the local real estate market, you could end up under water in your home. This means that you owe more than your home’s worth.

How do I know if a home equity loan is for me?

Every financial situation is unique, so make sure you understand your finances before looking for any debt. Mortgage equity loans cost money in the form of closing costs and interest payments, so you will always end up paying more than what you get out of the loan, but you will pay them off over time. You should only take out a home equity loan if you have a good reason to offer value on the road, such as paying for college, debt consolidation, emergency coverage, or remodeling your home to improve its value. future.

As with all financial products, you need to do an honest accounting of your existing finances and develop a plan for how you will use the money and how you will get it back. Remember that failing to do this with a home equity loan can mean losing your home. Finally, if you choose to proceed with a home equity loan, make sure you work with a reputable professional who has your best interests in mind. With the right information and a good plan, a home equity loan can be a great choice.

Finances FYI is presented by 1st Security Bank.

In the 1st Security Bank of Washington, we follow a customized and personal approach to your financial well-being. We live in the communities we serve, so our branches offer customized solutions to their communities. We believe that relationships make the difference and this sets the 1st Security Bank apart.

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