When Should You Seek a Home Equity Loan?
Home equity loans are useful when the homeowner needs substantial funds to undertake projects like home renovation or improvements, financing some major purchase or paying for other expenses like education. These loans are backed by the value of your house and they allow you to convert some of your home equity into cash. But it is important to understand what the right time to take a home equity loan is.
Property Market Conditions are Conducive
The amount of home loan is based on the present value of your house. This means that if the market value of the house has fallen recently, then it is not a good time to seek a loan against your home equity. In this case, it makes sense to wait until the housing market is doing better so that you can qualify for a higher loan amount.
You Have Significant Equity Built Up in Your House
You get a home equity loan only on the debt free portion of the house value and this becomes the collateral for the lender. If you have repaid a significant chunk of the mortgage on your house and have built up substantial equity, it could be a good time to seek a home equity loan.
Interest Rates are Low
Just like any other loan, the best time to seek a home equity loan is when the interest rates have been low for some time and are only likely to go up in the future.
You Have a Good Credit History
If you have been regular with your mortgage, credit cards and other debt payments and your outstanding debt is at an all time low, then it is a good time to go for a home equity loan. This is because at this time, your credit history will look attractive to the lenders and they will be willing to give you good rates on the loan.
You Have a Specific Expense in Mind
Home equity loans are a better option compared to many other types of loans as they come at lower rates. This is because the lender is able to secure the loan against your property. However, you should only take them when you have a particular expense in mind and take only as much as is required to cover this expense. This will prevent you form spending on unnecessary expenses. You should make sure that you really need the loan and that it is the right time for you to opt for it.