Using Home Equity To Become Debt Free (Pros/Cons)
A life in debt comes with restriction. You are forced to limit your expenses and live under tremendous pressure which is too much to bear.
Often in aspirations to debt free life people opt-in for home equity loans to repay their first mortgage or meet their home renovation expenses.
Home equity loans sometimes work for people who are willing to get rid of their credit card debt but become disastrous for others trying to tackle their consumer debts. So, borrowers must weigh both the pros and cons of home equity loans before applying for it.
The interest rates for home equity loans is still lower and within our reach. Home equity loans come with fixed interest rates and are divided into equal chunks over a month so you will be able to save money in the long run.
Tax Deduction Benefits:
Each year the tax law offers some tax benefits for every taxpayer that they can use to reduce their tax bills. If you already have a home equity loan you can deduct the interest when you are itemizing your taxes. However, if you are planning to take home equity loan to pay for your student debts or credit card bills then the interest won’t be tax deductible.
Home equity loans are useful when you need a lump sum of money to meet a huge expenditure at any time as you will be able to get more funds than HELOCs.
Liquidating your home:
Your lender can liquidate your home to get his money in case you appear to become a defaulter. As a result, you will be losing your home forever.
Going Upside Down:
There are chances of going upside down with your mortgage loan if the value of your home decreases in the market. In this case, you will owe more on your home than its actual value, getting into deep financial crises.
Closing Costs and Fees:
When you have repaid your loans completely you will need to pay your lender 2-5% closing fees to start with the closing process. Closing expenditures include attorney fees, appraisal fees, courier fees, credit report, home inspection fee, and others depending on your lender.
Sometimes borrowing money can help us to deal with our essential or sudden expenditures especially when you are not prepared for it.
Borrowing money is still a debt which may give you relief for a moment but later you will be the one to bear its consequence until it is paid off.
So, be wise and think twice before getting your home equity loan.