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30 Year Home Equity Loans: Benefits and Drawbacks


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TERMINOLOGY

A 30 year home equity loan presents home owners with many options to access money. Unlike other home equity loan programs, a 30 year program has several different factors to consider. Here are a few things to think about before you sign the paperwork for this loan option:

Benefits

  • Tax deductible - The interest that you pay on the loan is usually tax deductible. This can save you thousands of dollars on your taxable income. Other forms of credit, such as credit cards or personal loans, do not have this advantage.
  • Low payments - Spreading your home equity loan out over a 30 year period makes your monthly payments much smaller. Chances are you won't be in your house for 30 years anyway, so a small payment until you sell the house is ideal. It is a lot easier to budget for a smaller payment.
  • Easy process - Applying for a 30 year home equity loan is easy. You can walk into the lender of your choice, fill out some paperwork and wait on them to do their part. In a matter of days you can be approved.
  • Flexibility - There are no restrictions on what you do with the money from your home equity loan. If you want to add on a room to the house, pay medical bills or go on vacation, you can access the funds.
  • Consolidate - With a home equity loan, you can consolidate several accounts into one fixed monthly payment. This will give you the ability to make a single payment each month as well as take advantage of a lower interest rate. You can use the proceeds from the HELOC to pay off anything from credit cards to car loans to back taxes.

Drawbacks

  • Longer time period - Signing up for a 30 year home equity loan is a big commitment from you. If you stay in your house for that entire time, you will have a payment even after you pay off the initial mortgage.
  • Home equity tapped - You can only borrow against your home equity once. Once it is gone, it's gone until you pay off or refinance the loan. If you use it on something frivolous and then something catastrophic comes up and you need the money, you could be in trouble.
  • Another payment - Signing up for a home equity loan can get you deeper in debt and give you another monthly payment to work with. If you can't afford another monthly payment, it is not for you.
  • Many times, home equity loans have a draw period of ten years. A draw period allows you to take money out of the account. The remainder of the loan term, or 20 years, will only be used to pay back the balance. You need to be sure you use the money you need within 10 years and prepare for the fully amortized payments after that.