Searching for a approach 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 utilizing the money they have already invested in their home, without refinancing their mortgage.
What is a Home Equity Installment Loan?
A home equity installment loan is really a loan which uses the equity you already have at home as collateral. With your home’s equity as a guarantee, lenders are prepared to offer larger loans at lower interest rates than many other kinds of loans.
Unlike a house equity line of credit, most home equity installment loans are standard, one-time loans that are approved for any given amount and should be repaid over a pre-arranged schedule of installments which range from three to 30 years, much like a primary mortgage or auto loan. Installment payment amounts include both principal and interest.
Lenders offer installment loans based on some portion of your home’s appraised value, less any outstanding mortgage amounts. The maximum amount borrowed is calculated in accordance with the loan-to-value (LTV) ratio, which may be as high as 80-90%. This means if your property is worth $150,000 using a $100,000 mortgage balance ($50,000 in equity), at 90% LTV you might potentially qualify for a house 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 employed to finance everything from a house renovation to your wedding. Below are some of the major reasons consumers secure this kind of credit:
• Finance a house renovation
• Pay a child’s college tuition
• Pay off other, higher-interest debts
• Buy a second home or rental property
• Invest in a business opportunity
• Buy a marriage, anniversary, vacation, or any other big celebration or event
Installment loans are a good option for those who have a large, lump payment that you need to make now but would like to get rid of with time. They’re also ideal in a market with unstable interest rates, letting you lock in a low fixed interest rate.
Pros and cons
There are benefits and drawbacks to home equity installment loans, and times when this sort of borrowing is a lot more suitable than the others. Read on for a few guidelines to help you decide if this kind of loan is right for you personally.
A home equity installment loan is perfect for a 1-time purchase or investment, for instance a home renovation or the payoff of a high-interest debt, where you will only need to draw funds once and they are prepared to pay it back over a fixed schedule. An installment loan may well be a bad idea for frivolous purchases that may be difficult to cover back. Should 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 according to the agreed-upon terms.
On the positive side, as your home serves as collateral, you’ll more than likely be capable of getting a lower interest rate than an unsecured loan – which can mean big savings in interest payments as time passes. Interest rates are often nncooi for this sort of loan, which makes it possible to lock in a lower rate that won’t change with market fluctuations. You may even be able to count the interest as a tax deduction.
Home equity installment loans are fantastic for consumers who are interested in one-time loans and they are confident of their ability to repay it. They’re also a good fit for individuals who like the protection of the fixed interest rate.