Everything you need to know about home equity loans
We all know what loans are and how banks work with regard to making a loan. A home equity loan is different in that your home is mortgaged to the bank. This loan is basically a type of loan that allows you to borrow money using your home as collateral. It is a lump sum that you pay within a specified period of time, including fixed interest rates and monthly payments. This loan is a type of second mortgage, with your first mortgage being the one you use to acquire your home. Let’s take a look at the benefits of these loans and the risks involved.
Home Equity Loans Benefits
1. Ideally, they should have a low interest rate or APR (annual percentage rate)
2. They are easier to qualify for, in case you are financially unstable.
3. Interest rates on home equity loans may be tax deductible.
4. Allow you to borrow a comparatively large amount of money
You can take advantage of these benefits in these loans, since they are “safe” loans for banks to grant to their clients, considering that the loan is guaranteed by your house as collateral. In case you do not pay the amount, the bank can reclaim your house, sell it and get the money back.
Uses of Home Equity Loans
You can use this loan for various purposes. It would be ideal to use it for a more profitable purpose, since you have used your home as collateral. Common uses for home equity loans include:
1. Renovate or remodel your existing home
2. Accumulate funds to invest in another house or land
3. Pay for high school / college / other educational purposes
4. Combine debt with high interest
How to Find the Best Home Equity Loan Options
It is always suggested that you look around before deciding on any particular home equity loan option. What you can do is:
1. Check these loans with banks, brokers, credit unions.
2. Make sure your financial records and bank statements are up to date (also, make sure they indicate that you are financially stable)
3. Compare the pros and cons of home equity loans from various sources.
The risks involved
The most obvious risk in relation to these loans would be the possibility of losing your home, if you do not pay the amount to the bank. Additionally, there are a host of scams whereby homeowners are tricked into taking them off their property or stealing their money. To avoid either, you need to do a thorough background check on the bank you are dealing with and make sure everything is legitimate.