Home equity loans are a well-known option for borrowing money due to their favorable rates. The interest most borrowers pay is often tax-deductible, making the loans even more desirable.
However, borrowers should consider other options in certain situations. There are times when taking out a home equity loan may be unreasonable or impossible.
Read this article to learn about your potential alternatives to home equity loans.
Cash-Out Refinance
A cash-out refinance is an alternative to a home equity loan if you’re looking to borrow money. In this case, you can refinance your home mortgage by taking out a larger loan from the bank. The proceeds from the new loan go toward paying off your existing home equity loan and other debts, and whatever is left over is your “cash out.”
The interest rate on a cash-out refinance loan is usually lower than your home equity loan rate since you’re paying off your loan to the bank, not a third-party loan company. However, you’ll likely have to pay mortgage insurance, which can add to your monthly payments.
The amount you can obtain through a cash-out refinance is limited by how much equity you have in your home. Subtract the estimated mortgage and other expenses from the home’s sales price to determine the amount you can borrow. What you would have left is your equity.
Home Equity Investment
It’s also possible to borrow money to invest in your home. If you have the equity in your home to cover the amount you want to invest, you can get a home equity loan.
For example, say you have $50 thousand in equity in your home. You could get a home equity loan for that amount and invest the loan proceeds in an investment property or other financial instruments. Once you’ve invested the money, you’ll have to pay back the loan.
As with a regular home equity loan, you get the interest back on your home equity loan when you sell the house. Depending on your income status, you may deduct the interest on your home equity loan from your taxes.
Credit Card Cash Advance
Some credit cards offer cash advances to help you get a loan fast. These loans are often high-interest and short-term loans, so borrowers should only use them in emergencies.
If you take out a cash advance on a credit card, you’ll be charged a fee and a higher interest rate than you would get on a credit card with a regular purchase. If you request a cash advance, be sure to repay the loan as soon as possible to avoid paying high-interest rates.
Personal Loan
Once you’ve exhausted all other options, you might need to apply for a personal loan to help you out. Personal loans aren’t directly related to your home, and they’re available from other banks.
This kind of loan allows you to borrow money and pay it back with interest. The interest rate on a personal loan will probably be higher than your home equity loan rate. However, these loans could be more affordable if you’re trying to get a loan for a large amount of money.
Conclusion
While there are several different ways to borrow money and pay back your loan, not all options are worth pursuing. Make sure you’ve explored alternatives before settling on a home equity loan.
Are you looking for home loans in Sacramento, CA? Turn to Hawkins Home Loans. We are your trusted resource for a stress-free loan process. Schedule an appointment now!
