Take advantage of a home equity loan
Do you need some cash toward house repair or funding your child’s college education or medical bills? Do you need money to invest in shares? If yes, you can take advantage of home equity loans. These loans are also known as second mortgage. You may get the loan if your home equity is more than 20% and you have no hindrance on your existing property.
Home equity loan – What it means
Home equity loans are those which allow you to borrow money, using the equity on your home as collateral. As you are keeping a security against the loan, you may get lower interest rate. You can either opt to take a fixed rate mortgage or an adjustable-rate one.
It is difference between the value of your home and the money you owe. Say, you owe $150,000 and your home value is $450,000, so, your home equity will amount to $300,000. You can get a loan amount of $300,000.
In this type of loan, the outstanding amount will reduce every month by the amount of cash coming in. However, if you withdraw cash or pay your credit bills with this cash, the balance will increase. You also have to keep in mind that if you don’t pay more than the minimum interest-only amount each month, your interest may add up to an excessive lump sum over the loan term.
You can obtain a home equity loan to fund for the following expenses:
- Home repair: You can take the loan to do some repair work in your house.
- Medical bill: You can pay your exorbitant medical bills with this loan.
- Home renovation: With this loan you can renovate your house by going for new wallpaper or installing new gadgets.
- Debt consolidation: You can consolidate your high interest bills and pay off the new consolidated loan with the money you will borrow against home equity.
- College tuition fee for children: You can pay for your child’s college education with this loan.
Fees to obtain a home equity loan
To obtain a home equity loan, you need to pay fees for the following:
- Loan origination fees
- Home appraisal fees
- Title fees
- Arrangement fees
- Stamp duties
- Closing fees
- Early repayment fees
Pros and cons of home equity loans
The advantages of obtaining a home equity loan are:
- If you have higher home equity, you can get relatively large amount of loan.
- It comes with flexible features, like, you can pay toward the principal by paying additional amount to the minimum repayment amount or you can pay the interest only each month.
- The interest rates on this loan is lower than personal or credit card loans.
- You will enjoy tax benefit for the monthly payments you will make toward the loan.
- The loan comes with redrawing facility, so, if you need extra fund, you can have access to it.
- If you pay wages into your account each month, the interest will reduce.
- It will take less time to process the loan application
The disadvantages of obtaining a home equity loan are:
- You can lose your home if you are unable to make the monthly payments.
- If the equity drops too much, you will owe more on your home than its actual value.
- You need to pay for various charges while obtaining this loan.
Before obtaining home equity loans, you should shop around and compare the quotes offered by various lenders, banks and credit unions. You can also get references from your family members, neighbors, friends and office colleagues. You should also have good credit rating, in order to get lower interest rate. You should also check the reliability and the authenticity of the lending institution with the BBB and make sure to get the best deal.
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