Oct 5 2011
Home Equity Loan Faq
Naturally, you can pay off your home equity loan early, provided that you have enough cash. The question here is if it is a good idea to use your money to do that. Here are some tips and suggestions to consider.
As Canada is on its way to recovery from the global financial crisis, which spread from the United States, Canadians already see their incomes increasing, which makes them reassured about their financial wellbeing. It is quite understandable that they are now eager to pay off the home equity loans they have taken out in order to survive the global economic downturn. However, finance experts advise one should not be in such a hurry to pay off his or her home equity loan, as there are many underwater traps that he may fall into.
First, home equity loans comes with a low interest rate, and some of it will be deducible from the income you have declared. In addition to that, most home equity loans have substantial early-payment penalty fees that can easily make you change your mind.
Second, the money that you think you will save on interest in the future, by paying off your home equity loan early, could be eaten up by the increasing inflation. Taking this into account, it may be a better idea to put your money in a retirement savings plan and enjoy preferential interest.
In a similar way, you can open a workplace retirement plan, and this is a better idea that repaying your home equity loan early.
Given that home equity loans are the cheapest ones to obtain, it is wiser to use your additional income to repay other, more expensive debts consumer loans, car loans, credit cards, and so on. Payday loans and high interest credit cards are the loans you may think of repaying before you pay off your other debt in full.
Even if you have already paid off all of your outstanding debt, it is still unadvisable to pay off your home equity loan in advance. You’d better put some money aside for days of financial insecurity that may come. A recent research shows that no more than 3 in every 10 households in Canada have saved enough to survive over 3 months of unemployment.
If you are not sure what to do with the free cash and don’t want to pay off the home equity loan early, you can choose from a variety of options. For example, you can buy an adequate life insurance or disability insurance policy, or you can make reasonable investments in state bonds, stocks, gold etc. Gold investments may prove especially profitable in the near future, as the price of this precious metal has been increasing slowly but steadily for over twelve months now.To get more information visit Financialized – Personal Finance Blog
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