3 good reasons to borrow against your home

At different times in life, you may come across a situation where you need to borrow money. Maybe you need a new car, you’re stuck with a string of expensive medical bills, or you want to renovate and don’t have the cash to pay for your home renovations up front.

You can go out and get a personal loan, or you can apply for a credit card with a healthy spending limit and charge your expenses. But here’s why borrowing on your home makes more sense, whether you’re doing it with a home equity loan, home equity line of credit (HELOC), or cash refinance.

1. It is relatively easy to qualify

Personal loans are unsecured, which means they are not tied to a specific asset. But when you borrow against your home, your home itself is used as collateral for your loan. This means that your credit score is lower in terms of qualifying because your lender has recourse if you fall behind on your payments. This doesn’t mean that you won’t have a problem borrowing against your home if your credit is extremely low. But you may find it easier to qualify for a HELOC loan or home equity loan with fair credit than for a personal loan.

2. It’s generally affordable

The interest rate you’ll pay on a home equity loan or HELOC is typically lower than what you’ll pay on a personal loan, and it can be significantly lower than what you’ll pay on a credit card. Plus, if you’re doing a cash-out refinance, you could get a pretty good deal considering the current refinance rates.

3. It won’t hurt your credit – as long as you pay off your loan on time

When you charge expenses to a credit card and keep a balance that you pay off over time, you risk lowering your credit score in the process. One factor that goes into calculating this score is your credit utilization rate, which measures the amount of available credit you are using at a time. Even if you make your minimum payments each month, having too high a credit card balance could still damage your credit score. On the flip side, if you borrow against your home and make your loan payments on time and in full every month, it won’t hurt your credit at all. In fact, installment loans could even help your credit improves.

What is the right call for you?

Borrowing against your house is not without risk. If you fall behind on your home equity loan, HELOC, or mortgage payments on a cash refinance, you could potentially risk losing your home through foreclosure. But if you are confident that you can meet your loan repayments and not take on an excessive loan, then borrowing against your home could help you get the cash you need with a lower interest rate and a lower interest rate. easier qualifying period. And there is certainly something to be said for a less stressful borrowing experience.

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