Life can be unpredictable sometimes. Emergencies may crop up and leave you reeling once you get to see the bills that come with them. Studies show that40% of Americans can’t pay for a $400 emergency comfortably. So, you are probably not alone in your difficult financial situation. And yet, not everyone understands. Your creditors may want their money back regardless of whether you can pay them or not. So, what should you do?
One option would be to take a home equity loan. This kind of loan requires that you offer the equity of your home as collateral. Equity, in this case, refers to the difference between the market value of your home and the debts you still owe on that home. A personal home equity loan is essentially a second mortgage, and your local Indiana bank can give it to you if you have considerable equity. Here are some of the advantages of getting this loan:
1. You can get one large lump sum
If you have a lot of debts and need a huge amount of money to pay off those debts because they are due soon, and you are getting harassed, then a home equity loan can work for you as you can get it in one large lump sum. It is also suitable if you have emergency finances that require a lot of money. Such financial needs may include fees for your education, money for a surgery, or cash for urgently-needed home renovation.
The median price for a home in the US is $315,000. If you have been faithfully paying off your mortgage for a few years now, chances are you own a decent amount of equity. Since home equity loans can be as high as 85% of your home equity, the amount of money you can borrow can be quite high.
For example, assuming you have built up equity of $100,000 in an average home, it means you can get as much as $80,000. That is a lot of money that can help clear off your other loans and enable you to stay financially afloat until you get back up on your feet again.
2. The interest rate is lower
Home equity loans are given against collateral, which, in this case, is the equity of your home. Because of this collateral, your interest rate is usually lower since the bank will have something to sell to recover its money if you default.
It’s also worth noting the interest rate of a home equity loan is normally fixed for the duration of the loan. Due to the lower interest rate, home equity loans are more affordable to repay when you need large sums of money.
3. The payment period is longer
Since home equity loans are second mortgages, the payment duration is often spread out over many years. This makes repayment easier to deal with, allowing you to manage your debts upfront in a more manageable manner.
If you have a lot of debts or face financial emergencies, and you have decent equity in your home, you should consider getting a lump sum in the form of a personal home equity loan. Make sure to plan for repayment (and build an emergency fund), so you can handle future financial emergencies better.