Home values in Hawaii were up at least 13% last year, leaving way for homeowners to qualify easier on home equity loans. Theses secured loans can be a positive way to borrow money. It is important to be a smart borrower though. Know what you will use the money for and use it wisely. 

For example, renovation of home areas, such as remodeling your kitchen, adds value to your home.  Or perhaps the money is for college tuition. Both these qualify as wise reason to borrow against the value of your home. Even if you have a high outstanding credit card balance with high interest rates that you would like to consolidate would be good reason for a home equity loan.

Also, not often thought of is using a home equity loan to purchase a car. The advantages sometimes being low rates, bargaining power, and tax savings. Automobile dealers often mark their rates higher according to their own needs in financial deal. The negotiating power is unbeatable too when already having the money ahead of time, thereby saving even more money using a home equity loan. 

The downside being the initial upfront closing costs for the home loan or due to the second mortgage loan, you may be required to carry private mortgage insurance (PMI). The conservative way to approach a home equity loan is to not to create an additional burden of debt, and try to borrow wisely.  Home equity loans usually are assigned a fixed interest rate.  These loans typically allow you to borrow 75 to 80 percent of your homes current value minus what you still owe on the original mortgage. This is referred to by lenders as an LTV (loan to value). Staying within the LTR is recommended so repayment doesn’t become a problem down the road.

There is caution to be seen, say if you were to get a job transfer and need to sell your home,  if the purchase price does not cover both mortgage and outstanding home equity loan. On the up side, interest rates on these loans are lower than ever for now, and  plus loans up to 100,000 are tax deductible.

Also know, the amount of equity  is not a constant, it is dependant on the market conditions, terms of your mortgage, and your home’s value. Consider this before acquiring a second loan, such as a home equity loan.  Talk to professional who are trained to give solid financial advice and guide you respectfully.   Remember: your putting your home on the line.