Pros and Cons of a Home Equity Loan

 January 18, 2023

By  Kyrie Mattos

Tapping into home equity has become increasingly popular recently, as Americans currently sit on record-high levels of available equity. 

Homeowners can leverage this opportunity by taking out a home equity loan, which can benefit certain situations. To help you make the best decision, here is a guide on the pros and cons of a home equity loan you should consider before a home equity loan application.

Pros of A Home Equity Loan

Low-interest Rates

Home equity loans often offer lower interest rates than unsecured loans such as personal or student loans. Therefore, for a home equity loan, you will pay less in the long run and have access to cash when needed. Additionally, home equity loans offer tax advantages since interest on a home equity loan may be tax deductible, allowing you to save money on your taxes.

Flexible repayment terms

Home equity loans often come with flexible repayment terms, allowing you to choose how long or short the loan term should be. Additionally, borrowers can use a home equity loan payment calculator online to estimate monthly payments according to the home equity loan amount, interest rate, and payment frequency.

Fast Approval

Home equity loans can often be approved quickly with minimal paperwork, allowing you to get the money you need faster than other types of loans. Paying back your home equity loan also helps you build up equity, potentially increasing the value of your home. This investment could be a good move if you plan to sell and move later.

Opportunity to Consolidate Debt

Home equity loans can consolidate high-interest debt, including credit card balances and medical bills. For example, Achieve’s home equity loans offer competitive rates, an effective way to simplify your finances and use your home as collateral. Such a home equity loan can be the perfect solution for achieving financial success and eliminating the accumulating stress of managing multiple debt payments.

Cons of a Home Equity Loan

Risk of Foreclosure

As with any loan, failure to make your payments may have severe consequences and significantly damage one’s credit score; hence it is essential to be aware of this risk when taking out a home equity loan.

Additionally, there is a possibility of owing more than you initially borrowed, which can occur if you refinance your loan and take out cash over the value of your home. Overall this move might lead to substantial debt burdens as you will end up owing more than the home is worth.

Possibility of High-Interest Rates

Interest rates of home equity loans may be higher than other loan types because a home equity loan is considered riskier than other loans. After all, your home secures it. Additionally, a home equity loan typically carries an adjustable interest rate that can change over time, which means your monthly payments could become more expensive if rates go up.

Overall, ensure you are aware of the terms of your loan agreement.

Possibility of Additional Costs

Some lenders may require you to pay for appraisals and title searches before they approve your loan, and the costs for these services can add up quickly. You may also have to pay other fees, such as application processing or origination fees.

In addition, if you are taking out a home equity loan with a variable interest rate, there may be extra costs associated with changing the rate over time. These costs can significantly increase the cost of a home equity loan and make it less financially attractive.


A home equity loan can be an excellent option for accessing the funds you need. However, it is essential to consider the pros and cons before applying for one to make an informed decision. Research and find the best lender and terms that fit your budget.

Kyrie Mattos


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