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The recession of ’08 knocked the housing market flat on its face. Thankfully, the past few years have showed a steady comeback with home prices rebounding every day. With housing secured, the option for accessing home equity loans for extra cash seems more and more viable.

But just because you can, does this mean you should? If you’re looking to nip credit card debt with high interest in the bud by paying it off in full, or if you’ve got your eye on a home improvement project that increases equity in your house, a loan of this kind may make financial sense. Consider the benefits and drawbacks of undertaking a home equity loan, courtesy of Iowa State Bank:

Pros:

• Tax-deductible benefits abound: No matter how, when, or if it’s used, interest is tax-deductible for the first $100,000, and business expenses and other approved purposes might qualify for tax-deductibility. Make sure to double check with your tax advisor to see if you qualify.
• Interest rates are slashed: Because your home as collateral creates lower risk for lenders, interest rates on Home Equity loans are often lower than you’d receive on unsecured loans for the same expense.
• Fixed-rate interest is a safety blanket: Unlike a Home Equity Line of Credit (HELOC), a home equity loan operates with a fixed rather than variable interest rate. Like a mortgage, the rate is locked when the loan is secured, assuring that you’ll pay it back in predictable, stable monthly installments. If you have a steady source of income and a financial plan to accommodate, routine payments for this loan should come at no additional stress.

Cons

• Assume greater risk: A lender assumes risk with an unsecured line of credit, but your house and all payments you’ve made toward it become collateral when you secure a Home Equity loan, placing a brunt of the risk on you. You could face foreclosure and the loss of your home if you’re delinquent on a home equity loan. Pay the same attention and respect to it as any other mortgage.
• Face temptation to spend outside your budget: With your house as a bartering tool, it’s easy to view it as a bottomless piggy bank for quick access to cash to fund projects you can’t really afford. Rather than saving for a home improvement or saying no to a vacation that wasn’t in your budget, a home equity loan can masquerade as financial security that’s actually well outside your means. You still owe the money you borrow; make sure you have the resources to return it.

A home equity loan can be a benefit for some and a burden for others. Receive a personalized quote by answering just a few easy answers and find out what it’ll be for you!

Iowa State Bank, Equal Housing Lender, Member FDIC