3 smart reasons to borrow money against your home
At different points in life, you can come across a situation where you need to borrow money. Maybe you need a new car, you have a series of expensive medical bills, or you want to renovate and don’t have the money to pay for your home improvement upfront.
You could go out and get a personal loan or apply for a credit card with a healthy spending limit and bill your expenses. But here’s why borrowing for your home makes more sense, whether you’re doing it with a home equity loan, a home equity line of credit (HELOC), or a cash out refinance.
1. It is relatively easy to qualify
Personal loans are unsecured, which means they are not tied to any particular asset. However, when you take out a home loan, your home is used as collateral for your loan. That means your creditworthiness in terms of qualifications is less important as your lender will have recourse if you default on your payments. This does not mean that if your credit is extremely low, you will not have a problem borrowing for your home. However, you may find it easier to qualify for a HELOC or fair credit home loan than a personal loan.
2. It is generally affordable
The interest rate you pay on a home equity loan, or HELOC, is generally lower than the interest rate you pay on a personal loan and can be significantly lower than what you pay on a credit card. In addition, you can get a really good deal on a cash-out refinancing as today’s refinancing rates are in place.
3. It won’t hurt your creditworthiness provided you pay back your loan on schedule
If you have an expense on a credit card and have a balance that you pay off over time, you risk lowering your credit score in the process. One factor that goes into calculating this score is your credit utilization, which measures the amount of available credit that you are using at one time. Even if you make your minimum payments every month, too much credit card balance can damage your credit score. On the other hand, if you take out home loans and make your loan payments on time and in full each month, it won’t harm your creditworthiness at all. In fact, installment loans could even Help Your credit score improves.
What’s the right call for you?
Loans against your home are not without risk. Eventually, if you fall behind with your home equity loan, HELOC, or mortgage payments on a cash-out refinance, you could end up risking losing your home to foreclosure. However, if you are sure that you can keep up with your loan payments and are not taking on excessive credit, borrowing for your home can get the money you need with a lower interest rate and an easier time to qualify. And there is certainly something for less stressful borrowing.