Budgeting for a roof replacement in the Beehive State can be a tricky proposition, but the abundance of financing options make the process a lot less stressful. Among all the forms of debts you can obtain to fund your project, a home equity loan is arguably the most favorable.
Also known as a second mortgage, this type of loan allows you to borrow against your property, which is advantageous on many levels. Below are the reasons reputable roofing contractors in Salt Lake City, Utah, and other communities recommend it.
High Loan Amount
A home equity loan uses your house as security to help lower your risk as a borrower. With potentially high-value collateral, a lender will feel more confident to loan you a bigger amount.
Then again, the maximum amount you can borrow depends on the appraised value of your property at the time of application. If you have good credit, a lender may allow you to convert up to 85% of your current home equity into cash and pay you in a lump sum.
The only scenario where your application will be absolutely denied is when your mortgage is underwater. Having negative equity means you owe more money on your house than it is worth. In other words, your property is not a financial asset, and you do not even have any portion of ownership of it. But, if you have plenty of home equity, you may be able to borrow a substantial amount to buy any replacement roof you want on the market.
Low, Fixed Interest
Compared to a home equity line of credit, another type of second mortgage, a home equity loan comes with fixed interest. It is proof against market forces, so your repayments will not change even if the economy tanks down the road. As a secured loan, it gives a lender more motivation to offer a low-interest rate. Considering that it is the actual price of your loan, acquiring debt with a low cost of borrowing can save you more money over time.
Lengthy Repayment Period
Unlike unsecured debts, a home equity loan can be repaid in 10 to 15 years. It is a second mortgage after all. Although you may pay for more interest with a longer loan term, dividing your repayments into 120 to 150 months can make the installments super manageable. If you do not have a lot of regular expenses to contend with, a home equity loan will not make your monthly budget a disaster.
Improved Credit
Taking out any loan can hurt your credit, but a home equity loan can be beneficial. Opening a new account can increase your overall credit utilization and shrink the average age of your accounts, but it opens an opportunity to boost your credit score in the long run.
Other than diversifying your “credit portfolio,” a home equity loan can help improve your payment history over time. As long as you make complete and punctual repayments, it can be a good debt.
A home equity loan has many attractive features, but it is only one of the many you can choose from. Even if you are sold on it, it pays to explore more choices to get the most favorable financing deal when buying a new roof.