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If you’re a homeowner who’s currently in need of a large sum of money, you may not need to look too far to find it. Right now, the average homeowner has around $320,000 worth of home equity in their possession. And, depending on the value of your home and your existing mortgage balance, you may even have more to utilize. With most lenders requiring owners to leave 20% of their equity as a buffer, that still equates to a six-figure sum for many borrowers. Plus, right now, home equity loans come with interest rates many percentage points lower than what’s available with a personal loan or credit card, the latter of which has interest rates hovering near record highs.
However, borrowing $100,000 should always be approached cautiously and strategically, particularly when using your home as collateral, as you would when borrowing with a home equity loan. To better ensure success, then, homeowners should first do their research, shop for lenders and, perhaps most importantly, have the answers to the four critical questions outlined below.
See how much a $100,000 home equity loan could cost you here now.
$100,000 home equity loans: 4 critical questions to ask now
Ready to apply for a $100,000 home equity loan? Before taking the first step, consider the answers to these four questions:
Can I afford the monthly payments?
A $100,000 home equity loan won’t be cheap to pay back each month, even if home equity loan rates are significantly lower than they were one year ago. Right now, qualified borrowers can expect to pay between $986 and $1,244, approximately, each month. And that will be for a repayment period between 10 and 15 years. So you’ll need to have the funds to make those payments with relative ease, or you could risk losing your home to the lender. That said, if rates fall on your loan in the future, you’ll be able to refinance at that point and potentially lower your monthly payment by a substantial amount.
See what home equity loan rate you’d qualify for online today.
Are other borrowing options preferable?
It’s always a good idea to explore all of your borrowing options before reaching a final decision. That’s especially important when considering your most prized financial asset as a funding source. Make sure, then, that other borrowing options aren’t preferable for your needs and goals. While personal loans and credit cards have higher interest rates (significantly higher for credit cards) and, potentially, more stringent eligibility requirements, neither will use your home as collateral. That difference in borrowing structure may be valuable, even if it ultimately means having to pay more in interest each month.
What is the home value?
Your available home equity is calculated by your existing mortgage balance and your home value at the time of application. But pay close attention to that second part, especially when borrowing $100,000. Home prices are expected to rise in many parts of the country this year, but, in others, they could fall. Any number of unforeseen circumstances could cause your home value to plummet, quickly leaving you underwater by owing more on your $100,000 home equity loan than your home is worth. Don’t withdraw a loan in that high of an amount, then, if your home value and the home values around you are volatile now.
What is the intended use?
A $100,000 home equity loan will make a nice dent in your home’s value. So you should use it for appropriate purposes (and avoid dangerous ones). A home repair or renovation that could qualify for an interest tax deduction would fall in the former category. The same applies to consolidating high-interest debt. But buying an automobile, paying for a wedding or even buying a second home all come with dangers that many homeowners are better off avoiding and, instead, reviewing alternative funding sources for.
The bottom line
A $100,000 home equity loan can be an effective tool for homeowners, particularly in today’s elevated interest rate climate. But it will need to be approached smartly and with the right intentions. To determine both, consider the realistic answers to the above four questions first, before applying. From there, you’ll be able to better determine if a $100,000 home equity loan truly makes sense for you … or if just appears to.
Learn more about your home equity loan options online now.
