How Can I Calculate How Much I Can Take Out On A Home Equity Loan?
Most importantly, you need to figure out which loan is right for you, and once you find it, how do you decide how much to take out on it?
Home Equity Loan
First, let’s look at what exactly a Home Equity Loan is and how it works. According to About.com, a Home Equity Loan works as a type of second mortgage. This is a loan for people who are looking to take out large sums of money, or often who don’t have good credit. A Home Equity Loan is a basic loan that has to be repaid, however it pledges the borrower’s house as collateral. Putting your home on the line may sound scary but a Home Equity Loan has it perks such as:
Usually has low interest rates
Easier to qualify for if you have had bad credit
Payments may be tax deductible
Most Home Equity Loans are used to make large home remodels, pay for college educations, pay for medical expenses, or consolidate high interest debt. Lenders see these loans as lower risk because borrowers cannot run off with their houses or hide them if they fail to make payments.
How Big Should My Loan Be?
Figuring out how much one can take out on a Home Equity Loan can sound daunting. However, all that is needed to figure out the amount of your loan is a little subtraction. You take the amount that your home is worth and subtract the amount you still owe on it. The result you get should be the amount you can borrow on a Home Equity Loan. For instance, if your home is worth $100,000 and you owe $55,000 on it still, then you may borrow $45,000. It’s that simple!
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