6 Questions to Ask When Choosing a Home Equity Loan

A house is usually one of the biggest assets that a person owns. Whether it is big or small, it plays an important role in a person’s life. That is why homeowners should decide very carefully when deciding to leverage their home's equity, either by getting a home equity line of credit or a home equity loan.

Ask these 6 home equity loan questions before you apply:

Getting a home equity loan seems to be an easy option in situations when you need liquid cash quickly, but before applying for this loan you should ask yourself a few key questions.

1) What is the Interest Rate?

Assessing current economic trends is an important factor in deciding if a home equity loan is your best option. If interest rates are relatively low, then opting for a home equity loan could be a good choice.  On the other hand, if interest rates are relatively high, you might be better off with accessing your home's equity through a line of credit. 

2) Does the Home Equity Loan Have any Stipulation?

Home equity loans are not exclusively used for home renovation or other similar purposes. They can also be used for other financial needs a person might face like an unanticipated expense or college tuition for a child. Ask the lending institution if there are any limitations on the utilization of the home equity loan. This question can save inconveniences in the future and help you decide whether to apply for the loan or not.

3) What Costs Will I Have to pay?

A homeowner thinking about a home equity loan should inquire about all the costs associated with the loan. There are often extra costs. For example, you might have to pay for a home equity appraisal, and there could be annual costs, closing costs or cancellation fees. It is important to ask about additional costs to make sure you have enough money to stay within your monthly budget.

4) Which Term Will Work Best for Me?

Next, it’s important to decide the term of your loan, since it can play an important role in managing the loan's repayment. If you are in better financial condition, then a short-term loan is better. If you can’t manage higher payments, then a longer-term loan might be best.

5) How Much Time Does It Take to Get the Loan?

Thanks to technology, loan applications aren’t as time consuming as they used to be. The application submission, approval and loan withdrawal can take as little as a few days to complete. It is a good idea to ask questions about an approximate time that this process might take. This can be an important factor if the cash is needed immediately.

6) What Tax Advantages Does the Home Equity Loan Have? 

One of the advantages associated with home equity loans is the tax advantages available to homeowners. This tax advantage is not available with many other kinds of loans. Tax benefits differ from person to person depending on the lending institution, loaner’s financial conditions and state laws.

Watch Video: Understanding How Home Equity Loans Work

Put Your Home's Equity to Work With First Alliance Credit Union

Home equity loans have their pros and cons. If you're wondering whether to get a home equity loan, you'll want to ask questions like what costs you'll have to pay and what stipulations the home equity loan has before you decided to get one.

You can also get some valuable advice about leveraging your home's equity by talking with a lending advisor at First Alliance Credit Union. By explaining your current situation and how you plan to use your home equity loan, a lending advisor can help you figure out if a home equity loan is the best solution for you.

Got questions about home equity loans? Ask us!