Is Taking out a Home Equity Loan or Line of Credit Worth It?

One advantage to owning your home is that you can take out a loan or line of credit against it if you have built up enough equity (i.e., you owe less than what the house is worth). However, you should consider all the pros and cons of home equity loans and lines of credit before deciding to get one. Some advantages of home equity loans and lines of credit are: they typically have lower interest rates and longer repayment times than traditional loans, they are easier to obtain if you have flawed credit, and there are no restrictions on what you use the money for.

A disadvantage is that your house serves as collateral for the loan or line of credit–that is why it has better terms than a traditional loan. If you default on your payments, you could lose your house. Additionally, if the market value of your house declines, you could end up owing more on your house than what it is worth. For these reasons, you may only want to obtain a home equity loan or line of credit to do home improvements which increase the value of your home. If you decide to get a home equity loan, be sure to borrow only what you need and be sure that you can afford the monthly payments so you won’t default on the loan and potentially lose your house.

-Kathryn M.

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