A 100% home equity loan can free up your cash at a low interest
rate. While favorable rates and tax benefits make this option
look good, consider your own financial situation first. Asking
yourself the following questions will give you a better idea of
how much a 100% home equity loan can help you.
How Cheap Is Your Loan?
Is the APR on your prospective home equity loan better than what
you can find for a personal loan or a credit card? Chances are
that home equity loan rates are better. If you don't know, take
the time to research rates now. Lenders will post their APR
online or you can receive an emailed quote in minutes.
When you take out more than 80% of your home's value, you can't
qualify for the lowest rate. This can still be cheaper than
other types of financing though. Another factor in your loan's
cost in the tax advantage, which you don't receive with credit
cards or personal loans.
How Will You Financially Benefit From Your Loan?
Are you planning to pay off high interest debt or go furniture
shopping? Tapping into all of your home equity makes sense if
you see immediate financial improvement. For purchases that
don't appreciate, save up for the purchase.
Using all of your equity takes away a financial cushion that you
can use in an emergency. If you have no other cash reserves, it
is best to use another type of credit or only part your equity.
When Do You Plan To Move?
Another factor to consider is when you plan to move. By drawing
on all of your home equity now, you won't receive much from
selling your home in a year or two. After a couple of years of
paying back your principal and of your home appreciating with
the market, you will have enough equity built up to receive
something when you sell.
Maxing out your home equity is best for cases where you can see
immediate financial gain. Otherwise, keep at least a part of
your home's value for future financial needs. And always check
with several lenders to be sure you are getting the best deal,
no matter what type of loan you choose.
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