Homeowners searching for a way to finance large expenses can take advantage of their home ownership to get a hold of some extra cash. Home equity loans allow current homeowners to make use of the equity in their home to obtain and secure a cash loan. The present value of equity in ones home can be calculated by subtracting the current amount owed on the mortgage from the total appraised value of the home. Equity is built in a home or property as the homeowner puts more money towards the principal of the loan. Increasing the amount of principal paid off consequently decreases the amount owed on the mortgage and results in increased equity in the property.
Once a homeowner has built a significant amount of equity in their home, home equity loan refinancing is a viable solution to obtain a cash loan. Home equity loan lenders generally require borrowers (homeowners) to have good credit standing and an acceptable loan-to-value ratio. The loan-to-value ratio on a property helps lenders evaluate the risk involved with a home equity loan. The loan-to-value ratio on a home is determined by dividing the total amount of the mortgage loan by the appraised value of the property. Banks and lenders usually issue home equity loans to borrowers once the loan-to-value ratio has more equity than debt.
Home equity cash loans are very handy to fund large one time costs, such as family trips, medical bills, home renovation, debt consolidation, and buying a new home. Most of these expenses are well worth the initial pay out because they provide returns in the long run. Home renovations made possible through home equity loans is a great example. Homeowners who decided to use the equity in their home to pay for home improvements are generally able to earn the money back when time comes to sell the house. Home improvements increase the value of a home, allowing homeowners to sell the house at a higher price and gain a greater return on their investment.
Consolidating debt through the use of home equity loans also provides homeowners with a means to eliminate debt and gain a return on their investment. Transferring high interest debts, such as credit card debt, into a low-interest home equity loan can provide massive savings for homeowners. Reduced interest rates are not the only advantage of combining different loans into one low-interest loan. Homeowners also avoid the hassle of dealing with multiple monthly payments and multiple loan terms. Borrowers can enjoy the convenience of only one monthly payment and one set of conditions to remember every month.
Tax deductibility is also worth mentioning when discussing the advantages of home equity loan refinancing and how it aids in eliminating debt. Homeowners can reap tax savings through debt consolidation or consolidating consumer loans that are not tax-deductible into a tax-deductible loan. Interest rates charged on home equity loans and mortgage refinance loans are tax deductible, whereas the interest rates on consumer loans such as credit cards, credit lines, student loans, and car loans are not tax deductible. Homeowners interested in saving money can consolidate their consumer loans into one loan, namely a mortgage loan or home equity loan, and avoid the extra monthly expense of paying multiple tax charges. Home equity loan refinancing is a great way to make use of the equity accumulated in your home and gain access to extra cash. Home equity loans provide a variety of benefits ranging from reduced interest rates to tax savings, with few costs involved. Homeowners interested in a home equity loan should take a moment to explore the offerings of different loan professionals to find the best and most suitable deal. Home equity loan refinancing can make life a lot simpler, especially for money-conscious homeowners searching for a way to lower overall living expenses and make wise investment decisions.