Home Equity Loans: A Useful Financial Tool

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The investment need of an individual varies with time. Thus the need to buy a car or invest in a new house, which may have seemed "beyond means" a few years ago, may be a relevant and wise decision today. However, taking a consumer loan at existing rates may add to the existing debt burden of the individual. This is where home equity loans can be of help.

A home equity loan can be a very useful financial tool in the hands of the borrower, particularly if the avenue where the borrower would invest the loan amount would otherwise have to be financed at higher lending rates.

Thus the borrower can get access to cheaper loans, which can be used to finance secondary requirements like buying a car or modifying/renovating his/her existing home, repaying existing debt, medical costs, etc.

Home equity loans have other advantages too:

Tax deductions: The interest payable on the secured equity loan is deductible up to a maximum of $100,000 or the equity value in your home, whichever is less. Thus besides access to lower rates of interest, the equity loan also gives the borrower tax benefits.

Lower interest rates: As discussed earlier, a home equity loan can give access to loans at a lower rate than other means of debt like credit card debt or consumer loans. This can amount to a considerable savings on interest payments. Hence these loans can be used to retire old high-cost debt and help in the consolidation of debt.

Ease of qualification: As compared to other loans, it is easier to qualify for a home equity loan. This is because the loan is disbursed against the equity of your existing home. This results in a faster and relatively hassle-free disbursement of loans.

Flexibility of payment: The borrower can use the loan as and when required and may also be able to decide when the principal repayment should be done. This proves to a useful tool in the case of money management, particularly in the case of emergencies.

Home equity loans, if used wisely, can improve the financial standing of an individual as they provide easy and relatively cheap access to money.

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