Trying to find a method to fund new home renovations, invest in a second property, or pay for a child’s higher education? A home equity installment loan might fit the bill. Consumers often turn to home equity loans in an effort to finance a large expense or investment using the money they have already invested in their home, without refinancing their mortgage.
What exactly is a Home Equity Installment Loan?
A home equity installment loan is really a loan that utilizes the equity you have in your home as collateral. Together with your home’s equity as a guarantee, lenders are able to offer larger loans at lower interest rates than many other types of loans.
Unlike a property equity line of credit, most home equity installment loans are standard, one-time loans which can be approved for a given amount and should be repaid over a pre-arranged schedule of installments ranging from three to thirty years, much like a primary mortgage or car loan. Installment payment amounts include both principal and interest.
Lenders offer installment loans based on some amount of your home’s appraised value, less any outstanding mortgage amounts. The utmost amount borrowed is calculated based on the loan-to-value (LTV) ratio, which may be as high as 80-90%. What this means is if your property is worth $150,000 using a $100,000 mortgage balance ($50,000 in equity), at 90% LTV you could potentially be entitled to a home equity installment loan for as much as $45,000 ($50,000 x 90%).
Who Uses Home Equity Installment Loans?
This type of loan can be utilized to finance anything from a property renovation to your wedding. Below are the significant reasons consumers secure this sort of credit:
• Finance a property renovation
• Pay a child’s college tuition
• Repay other, higher-interest debts
• Buy a second home or rental property
• Invest in a online business opportunity
• Purchase a wedding event, anniversary, vacation, or another big celebration or event
Installment loans are a good option if you have a big, lump payment you need to make now but would like to get rid of over time. They’re also ideal in a market with unstable interest rates, allowing you to lock in a low fixed rate.
Advantages and Disadvantages
You can find pros and cons to home equity installment loans, and times when this sort of borrowing is more suitable than others. Read on for many tips to help you see whether this type of loan is right to suit your needs.
A house equity installment loan is great for a 1-time purchase or investment, such as a home renovation or perhaps the payoff of the high-interest debt, where you will simply must draw funds once and they are ready to pay it back over a fixed schedule. An installment loan is probably not a good idea for frivolous purchases that may be difficult to pay for back. If you default on the loan you will lose your house, so it’s important to be certain you’ll hold the methods to pay back the funds based on the agreed-upon terms.
On the positive side, as your home serves as collateral, you’ll probably be able to get a lower interest rate than an unsecured loan – which can mean big savings in interest payments as time passes. Interest rates are generally nncooi for this sort of loan, which assists you to lock in a lower rate that won’t change with market fluctuations. You may even have the ability to count the interest as a tax deduction.
Home equity installment loans are fantastic for consumers who are interested in one-time loans and therefore are confident of the capability to repay it. They’re also a good fit for those who like the safety of any fixed interest rate.