A manufactured home equity loan is the amount of money a homeowner can borrow against the existing equity in their manufactured home. These types of loans are typically capped at $ 100,000, but the interest paid on the loan is deductible from the owner’s income taxes. There are two general types of equity loans available; a fixed rate loan or a line of credit loan.

The fixed rate loan is essentially a second mortgage that works much like a standard mortgage. The borrower receives a lump sum of money, usually in the form of a check, and agrees to pay it back over a certain period of time with interest. The interest rate remains fixed for the life of the loan, which also keeps the monthly payments the same. These loans typically have a term, or repayment period, of five to twenty years, and if the home is sold, the outstanding balance must be settled with the proceeds from the sale of the home.

A line of credit works a little differently. The loan is a fixed amount, but unlike the fixed rate offer, the borrower can access what is essentially an account that contains the amount borrowed. It works much like a credit card, and in many cases the borrower receives a credit card or checks so that they can withdraw the money when they need it.

Most lines of credit have variable interest rates that depend on the interest rates during the month the money was withdrawn. This means that the monthly payment can vary from month to month, which can negatively affect the owner’s budget. This should be carefully considered for anyone interested in obtaining a line of credit home equity loan. The repayment terms are usually the same as for fixed rate offers.

There are a wide variety of benefits to obtaining a manufactured home equity loan, including paying for college tuition, paying off high-interest debt such as credit cards, or making home improvements. But there are also disadvantages that homeowners must take into account, otherwise they are in a worse financial situation than before applying for the loan.

The first thing to consider is how long you plan to stay in the house. Consuming your existing equity with a loan will seriously affect the upgrade to a more expensive home because you won’t have the cash to make a large down payment. If you are using your current home as a stepping stone to something bigger and better, a home equity loan is not a good option.

Another pitfall is using the money to consolidate debt and then continuing the same behavior that contributed to all of the debt in the first place. Many people use these loans to pay off their credit cards and then start using them again. This cycle is called a debt recharge, and before you know it, not only are you owed your loan, but all credit card payments are returned as well. Unless the homeowner is serious about getting out of debt, getting this type of loan is a bad idea.

For the homeowner looking to make home improvements, a home equity loan may make sense. The thing to keep in mind is making improvements that don’t add much or no value to the home. Things like landscaping and a sprinkler system may look nice, but they don’t necessarily add enough value that going into debt to do so is a good idea. Two areas that are sure to improve the value of a home is kitchen or bathroom remodeling.

Any time a homeowner is considering a manufactured home equity loan, they should evaluate their current financial situation and determine if it will have any negative impacts. Only then can they determine if it is a good fit for them and their finances.