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“Struggle is a never-ending process. Freedom is never really won. You earn it and win it in every generation.” – Coretta Scott King

July 13, 2021

Why home equity loans are the best loans.

There are many loan options for homeowners, but we believe home equity loans are the best loans. Here’s why.

Have you ever stepped into your bathroom, looked at the old ceramic tile and outdated vanity and thought, I wish I could just remodel this thing? Do you ever feel like the interest on your credit card, student loans, and other loans keeps growing faster than you can pay it down? Are you worried about paying for your kid’s college?

Even when you are a responsible spender and saver, some expenses can seem too big to afford. A lot of people look at home renovations, college, and even consolidating debt as a pipe dream. But that’s because many people overlook what’s right beneath their feet—their home!

If you own a home and have equity in it (the difference between the value of your home and the principal on your home loan or mortgage), then there is a good chance you can qualify for a home equity loan. Or, as we like to think of it at Kelly Community, the best loan!

What is a home equity loan?

A home equity loan, which is different than a personal loan or a Home Equity Line of Credit (HELOC), is a large lump sum loan taken out of the equity in your home that is paid off at a fixed rate over time. The more equity you have in your home, the more cash you can borrow.

Why is it the best loan?

When considering a loan, you need to think about these three things:

  • What is the interest rate?
  • What is the term (amount of time you have to pay off the loan)?
  • Is it a fixed rate or variable rate?

With a home equity loan, the numbers win for every category when put up against other types of loans.

Why home equity loans are the best loans.

Reason #1: Low interest. Long term. Fixed rate.

The home equity loan is such a good choice because it has a lower interest rate than others. An average interest rate for a home equity loan is 5.36% APR, whereas an average credit card rate is 16.09% and a personal loan is 10.49%.

This means that you will save more money and pay less over time with a home equity loan than with any other loan. And since they are usually a fixed rate with a 5 – 30 year payoff term, the monthly payment is fairly low and will stay the same throughout the course of the loan.

Reason #2: Large sum. Little spending restrictions.

As long as your credit is in good standing and you have enough equity in your home, you can usually borrow more cash through a home equity loan than other loans. For example, if your home is worth $500,000 and the remaining principal on your mortgage is $350,000 (30% equity), you can borrow up to $75,000 and pay only about $432 per month.

Most personal loans and credit cards do not allow for borrowers to borrow that amount of cash.

Home equity loans also don’t have guidance or restrictions on how you can spend the loan. Whereas a mortgage has to spent on a house, or a car loan on a car, you can spend a home equity loan on anything you want. Home renovation, debt consolidation, college, vehicles, shoes (maybe a bit overkill for shoes)—all of it is a fair game with a home equity loan.

Reason #3: Use value to gain value.

One of the best reasons we like home equity loans is that it gives home owners the opportunity to use the value they already have to make their home more valuable. This is only true if the money is spent on a value adding renovation to your home or property, but it can make a huge difference in long term wealth building.

Things like renovated bathrooms and kitchens make your home more valuable, which means that not only do you get to enjoy an updated home, you can often recoup the principal of your loan within a short period of time.

If you own a home and need a loan, consider a home equity loan first! At Kelly Community we want you to earn more, save more, and do more financially. Apply now to see how you can save with a home equity loan today!

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