Right now there is a lot of uncertainty in the world. As COVID-19 continues to have an impact on economies and jobs, there are many who are looking for ways to stay afloat financially through tough times. If you own a home and you have a significant amount of equity in that home, you may have thought about taking out a home equity loan to help cover some of your bills in an emergency as you watch your personal or emergency savings dry up.
Those lucky enough to still have a steady job where they can work from home, or one that is “essential,” like healthcare workers, may also be looking at current interest rates and wondering whether now is a good time to use the equity in your home to borrow money for something you have been planning, like a home renovation or even college tuition.
Benefits of Home Equity Loans Right Now
There are a lot of reasons that a home equity loan might make sense for you right now. These loans:
- Can be used for almost anything, including paying off debts, making home improvements, or just to get some emergency cash for necessary living expenses.
- Offer fixed payments with a set interest rate so you will have a predictable payment over the entire life of your loan.
- Generally offer lower interest rates than credit cards or other personal loans, especially if you have good credit. You can also pay them off early without a penalty, which can save on interest costs over the years.
- Some home improvements are eligible for tax deductions, but check your local tax laws before you get the loan to make sure yours is covered if you’re counting on a deduction.
- The Consumer Financial Protection Bureau (CFPB) recently created a rule that speeds up home equity loan closing processes, which can help you access emergency cash sooner.
Drawbacks of a Home Equity Loan
Home equity loans can also have some drawbacks:
- Not all lenders are offering home equity loans right now, especially lending institutions worried about the risks.
- Some lenders may have stricter restrictions or requirements to get a home equity loan in the current financial climate, so good credit is essential.
- Your loan is secured with your home as collateral, so if you are unable to make payments on it, you risk foreclosure.
- If home prices drop, you could find yourself “underwater” in your mortgage, even if you’ve paid down some of your original loan.
Understand Your Options
For some people other options might be better:
- Using low- or no-interest credit cards in the short term
- Borrowing money from a friend or family member
- Talking to your lender or creditor(s) about forbearance
- Borrowing from your 401(k) savings
- Getting a personal loan
Talk to an experienced lender at Integrity First Lending to learn more about home equity loans before you determine if they are a good option for you.