Home Equity Loan: Tread Carefully

Home equity loans have become quite popular these days, they are not the typical housing loans or mortgages that you take out against the value of your property but these are loans that are taken against the equity that is in your house. These loans allow you to borrow against the value of your entire home. You must be wondering what makes these loans so attractive; it is the fact that these loans are easier to qualify for as compared to the rest of the loans available in the market and also that you can borrow huge amounts of money through these loans since these personal loans for bad credit are secured by the value of your house. Think about it, if you have a debt that is less than the value of your house then you can borrow a huge amount on it through the home equity loans and can use it to meet some other pressing needs. A home equity loan can be considered an extension of the second mortgage type of loan, here too the first mortgage happens to be the loan you took out to buy your house and the second mortgage is any loan that you take out after the first mortgage against the equity that you have built in the house.

Benefits of home equity loans

Home equity loans can be classified as one of those loans that please and attract both the parties the lenders and the borrowers. Enlisted below are some of the many benefits that one can obtain from the home equity loans. The first and most considerable of which is that you get the comparatively lower rates of interest for a home equity loan. Secondly in a home equity loan qualifying is never an issue, you can qualify for these loan easily even if you are sporting a bad credit. Many times it also happens that the interest rates on any home equity loan are tax deductible. Home equity loans give the borrower the opportunity to get a larger amount of money in terms of loans as compared to other loans. These loans carry all these benefits except for the part where they are tax deductible, primarily because they are secured by the value of your house. The presence of your house in between as a collateral does increase the amount and the benefits since in case you default the payments that are left unpaid by you are paid by selling off the property that is used as collateral by the bank. And the fact that their home is at stake, even the borrower pays much more attention to these loans as compared to other debts like credit card debts simply because if they don’t make much effort in it they could end up losing their home.

The banks are also very cautious about the amount they lend you. They make sure that they do not lend too much that they end up in losses, so they follow a general rule of only lending as much as about 85% of your house’s value while also considering how much your first mortgage cost and what other home equity loans you have applied for and how much they cost.

The working of a home equity loan

Home equity loans are primarily the amortizing type of loans, where there is a fixed rate for the duration of the loans no credit check, the payments that you have to make monthly are manageable and fixed and earth time you make a payment you decrease a portion of the balance and the interest that you have to pay. In case you do not need that whole amount of money at once from the loan then you can create a Home Equity Line Of Credit (HELOC). A HELOC stores the lump sum amount of money that you get out of the loan and allows you take out as much as you want and require at a given point of time, you can consider it as a pool of money created. The interest rate that you pay for is only for the amount that you borrow, the only drawback with these loans is that the banks can withdraw it at any given time irrespective of the fact whether you have used any money or not. Also the rates for interest in a HELOC keep on changing over the course of time.

Uses of Home equity loans that are common

Home equity loans create a decent amount of money but in the larger picture people mostly use these loans to manage the large expenses of life since the value is quite large as well, with what having been drawn against you’re the equity of your home. You can use the money generated from these loans for remodeling the house, improving the infrastructure, pay for the college education of a family member, getting funds for the purchase of a second house, or to even consolidate high rate debts.

Drawbacks of a home equity loan

The most important thing to bear in mind while dealing with these loans is that you can end up losing your house if you fail to keep up with the repayment schedule. The amount generated from these loans can be quite a lot and hence tempting but should only be used for very important needs. There are a lot of scammers out there, therefore it is very important that you are careful and at any point if you feel something is wrong, then you should take a step back as after all it is your most valuable asset at stake.