What is a Home Equity Loan? Basically, a home equity loan is simply the money any homeowner can borrow against the value locked up in the equity of their house.
If you own your own home, getting home equity loan refinancing is relatively easy.
Especially since the interest rates on these types of loans tends to be set at a fixed rate for the entire term of the loan (which can range anywhere from three years to thirty years, depending on how much you borrow).
Home equity loan refinancing is becoming a more popular choice for today's homeowner, and lenders are aggressively seeking the attention of potential borrowers by offering ever more competitive interest rates on their marketable loans.
This is good news for homeowners everywhere as this gives you the opportunity to unlock the valuable equity in your home, thus gaining you access to a large amount of credit at a low interest rate.
You may even be able to claim the interest as a tax deduction since the debt has been secured on the home.
What Are Interest Only Home Equity Loans? Essentially, interest only home equity loans are a more risky form of home equity loan refinancing.
They allow you to need only make the minimum monthly payment of just the interest owed on the line of credit that you have borrowed.
This means that you don't need to pay back the credit that you have borrowed straight away.
You need only pay back the interest that you owe on that payment, thus making your monthly payments much lower than a typical home loan monthly repayment.
However, these loans are usually only set for a shorter period of time, lasting anywhere from three to five years (depending on your lender).
After that time, you are required to pay back the full monthly amount which will be the total amount of both the credit you have borrowed AND the interest you owe on it.
So How Do You Go About Deciding If An Interest Only Home Equity Loan Is For You? Since it doesn't matter how long you have lived in your home, in regards to apply for an interest only home equity loan, the question you need to ask yourself is this; Is an interest only home loan the best option for me right now? Here are a few tips in helping you decide whether or not you will need an interest only home loan: Tip Number One - Will you be able to afford the larger monthly payments in a few years time? Interest only loans may seem like a great option, due to the fact that you are initially making such low monthly payments.
However, you need to be aware of whether or not you'll be able to keep up with repaying the full monthly amount in a few years time.
Tip Number Two: Are you thinking of moving home anytime soon? Because if you are, an interest only home loan may not be for you.
With an interest only home loan, you are essentially taking out a remortgage on your home.
So unless you can feel confident about rising house prices in your area, these loans are more suited for people who intend to hold onto their property for a while.
Tip Number Three: Do you really need a large line of credit? By unlocking the equity in your home, and liquidating it into cash, you can gain easy access to a large fund of credit.
However, since there is an inherent risk of losing your home whenever you take out any line of credit secured on your home, you need to ask yourself if you truly need the money right now.
Or if you can, instead, find alternative methods of funding.