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Borrowing money is always fraught with concerns and questions but especially when considering a large, six-figure sum. If turning to a credit card company or personal loan lender, the application process may be stressful in and of itself. Since neither option requires collateral, the eligibility criteria for borrowing $100,000, for example, can be extended and time-consuming, leading borrowers to inevitably consider alternatives.
But what about home equity loans now? In today’s unique economic climate, home equity levels are high, with the average homeowner in possession of $313,000 worth of home equity, up 6% year over year. A $100,000 withdrawal would still leave a substantial amount of equity in the home for future usage. Still, using your home equity as a funding source comes with inherent risks that will need to be strategically managed, especially in today’s evolving economic climate.
But is a $100,000 home equity loan a good idea now? Or should borrowers consider their other options? Below, we’ll break down what to consider.
Start by seeing how much home equity you’d be eligible to borrow here.
Is a $100,000 home equity loan a good idea now?
While the decision to borrow such a large sum of money from your most prized financial asset needs to be considered carefully, it can be a smart way to gain access to $100,000 now. Here’s why:
Interest rates are fixed: Borrowing $100,000 will need to come with a precise plan for repaying $100,000. Fortunately, that’s easy to do with home equity loans … and not so easy to do with home equity lines of credit (HELOCs) or credit cards. That’s because the latter two types have variable rates subject to change based on market conditions. But that home equity loan rate will remain fixed until refinanced, allowing borrowers to determine exactly what their repayments will be, their affordability and the pay-off date, all features that variable rate products struggle to provide with clarity.
See what fixed home equity loan rate you’d qualify for now.
Interest rates are low: The average home equity loan interest rate is just 8.37% now. That makes it significantly less expensive than personal loans (at 12.37%) and almost three times less costly than credit cards (near a record 23%). If you’re going to borrow a six-figure sum of money, after all, you’ll want to keep your repayment costs minimal. Fortunately, a home equity loan, which has seen average rates decline for more than a year, can provide that option if applied for now.
Eligibility may be simpler: As mentioned above, the application process for a $100,000 personal loan or $100,000 credit card limit can be arduous, time-consuming and stressful — and borrowers may still get rejected once the application is completed. But the process for securing a home equity loan in this amount can generally be simpler, depending on the borrowing profile of the homeowner. Because lenders know the home is being offered as collateral, and because lenders can easily see a history of mortgage repayments on the property, they can more easily determine eligibility, ultimately resulting in quicker disbursements of funds compared to some popular alternatives.
The bottom line
A $100,000 loan, no matter the funding source, should be approached with caution and nuance. But if you’re looking for a fixed rate to accurately determine repayments, a low rate that can help make those repayments more manageable and an application process that can more easily get your funds delivered on time, a $100,000 home equity loan may be the right choice for you now. Just be sure to do all of the calculations in advance and have all of your questions answered by a lending professional before getting started. Failure to repay any home equity loan, no matter the amount, can result in the lender taking back your home. So you’ll want to be completely prepared to make your payments before signing any paperwork.
