Choosing the Right Home Equity Loan For You

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In the past decade, a consistently performing real estate market, attractive tax benefits and low interest rates have made home equity financing a popular credit option for consumers. A house has become an important part of our financial health. Many Americans are reaping the inherent values of their homes to raise capital and refinance debt. With home equity as a foundation, you can rely on your home to act as a powerful financial cornerstone.

Home Sweet Investment
Existing-home sales stood at 6.1 million in 2003, up 9/6% from 5.57 million in 2002.
Average home prices increased significantly in 2003: The national median existing-home price was $169,900 — an increase of 7.5% from 2002. The median new-home price increased by 3.7% to $194,500.
Source: National Association of Realtors, 2003.

Flex the Muscle of the Real Estate Market
While 2003 was an up-and-down year for the stock market and the economy as a whole, one sector that showed optimism was the real estate market. Home prices in 2003 generally continued to rise over the previous year. This shows that in spite of a weak economic outlook, people still see buying a home as a savvy investment. This is good news for homeowners- it means that the value of your home is appreciating, and gives you one more reason to consider a home equity loan or line of credit as a financing option.

Many Reasons to Consider Home Equity
The rising value of your home is just one influencing factor. There are many other reasons why you should consider home equity financing. For instance, it has tremendous potential tax advantages. In many cases, you may be able to claim the interest you pay on home equity credit as a deduction and reduce your taxes. Consult your tax advisor or accountant regarding deductibility of interest. If you're looking to borrow money or consolidate your debt, home equity products can be a smart choice because they usually carry a lower interest rate than other loans and may reduce your monthly payments.

Putting Home Equity to Work
There are many smart ways to leverage the equity in your home. Many people use it primarily to refinance their debt and pay off higher-interest loans. If you do not have outstanding loan balances, you can use it to further increase the value of your home by starting home improvement projects. Thinking of remodeling your kitchen? Adding a second story? Building a new garage? All these projects can be financed by home equity credit. Would you like more ideas on how to put your home equity to work? See how other Americans leverage their home equity.

Choosing the Right Type of Home Equity Product
You can choose from two basic types of home equity products: a home equity loan or a home equity line of credit. The right product for you depends on your needs and your profile.

Can you estimate how much you need?
If you need financing for a specific purpose and know just how much you need, you might want to consider a home equity loan. This way, you'll only need to borrow a specific amount based on your requirements. If you can't estimate exactly how much you'll require, a home equity line of credit might be a better choice. This can help you if you have multiple needs like lowering your credit card debt and paying for a major purchase, and you'll have ready access to credit if you need it.

Do you prefer stability or flexibility?
Home equity loans offer a steady payment structure- which means that your interest rate and monthly payments are fixed over time. A home equity line of credit, on the other hand, is a flexible option like a credit card- your payments are determined by how much you borrow and interest rates vary as the Prime Rate changes.

Do you need it "all-at-once" or "once-in-a-while?"
With a home equity loan, you receive the money all at once. With a home equity line of credit, you can choose to borrow when you want and how much- as long as it's within your established credit limit.



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