What is a Home Equity Loan?
We all make many sacrifices in the name of home ownership. Just think of how much you have given up? A lot of us have given up a lot to make those minimum monthly mortgage payments. What about those holidays you are planning? All of those nice dinners out on the town, and do not forget the new clothes! You can never have too many! Surely there are A LOT of other things spring to mind for you as well!
Most people feel that each month they hammer away at their home loan while missing out on the good life. However, if you have something special planned that you have been putting off in the name of the mortgage - like a wedding or maybe even a long awaited (and well deserved) vacation, a home equity loan could grant you all of the freedom to do so!
Just think, how good would it be to go off and have your dream wedding with the person of your dreams, then off for an amazing honeymoon - to come home to your own home; without breaking the bank!?
How Does a Home Equity Loan Work?
If your property is valued at a greater amount than the loan secured against it, a home equity loan unlocks this value. You can then use this as cash for the things you need! The risk to the lender is low, as there is security in your home. In return for this, you are rewarded with a low interest rate and fees. This is often referred to as a second mortgage.
Many people take out this option to pay for any urgent and unexpected medical fees or college tuition or perhaps even debt consolidating. If you feel like your personal debt is getting out of control, a debt consolidating home loan could help to remedy this problem. Your individual credit card or personal debts are all rolled into one personal loan, which is secured against your property.
Once you have paid out your credit cards and cut them up the temptation to go out spending has (hopefully) gone. Debt consolidating is a good way of making sure that you maintain good credit, or even as a step towards correcting a bad credit rating. A debt consolidating home loan is quite popular these days, they are much easier to get approved by a lender as there is a low level of risk involved for a bank.
Closed End Home Equity Loan
Many types of home equity loan exist on the market, most for the purpose of debt consolidating. Make sure you have reviewed these so you obtain the best product for your own personal needs. A closed end home equity loan is a product where you receive a one off lump sum on money. What you do with this is up to you, whether you decide to pay off existing debts as a way of debt consolidating or simply spend some money on yourself.
This amount of money is determined by the value of your property less any loans you currently have against it. Other factors include your credit rating and your ability to pay back the loan. Usually, you will have fifteen years to pay off a closed end home equity loan. There is also a balloon payment due at the end of the loan period.
Open End Home Equity Loan
Another option is a home equity loan line of credit, or an open ended equity loan. In this scenario you are able to borrow a similar amount to the close end loan that is the value of your property less the existing loan; however the loan works more like a credit card. The interest rate is variable in most cases.
You are able to borrow money and then pay it back - much like a credit card! This is a good option if you have a short term cash flow problem or are facing ongoing costs such as medical expenses.
Home Equity Loan Risks
In theory, the home equity loan sounds like a good idea if you need to free up some cash. It is not, however, without risks. Look out for predatory lenders; these industry sharks look for people with debt consolidating problems or with a low income and prey on them.
Often they stitch up clients with a bad product on a high interest rate with a multitude of fees. Make sure you protect yourself by shopping around, get the best product on the market to suit your own needs.
Most people feel that each month they hammer away at their home loan while missing out on the good life. However, if you have something special planned that you have been putting off in the name of the mortgage - like a wedding or maybe even a long awaited (and well deserved) vacation, a home equity loan could grant you all of the freedom to do so!
Just think, how good would it be to go off and have your dream wedding with the person of your dreams, then off for an amazing honeymoon - to come home to your own home; without breaking the bank!?
How Does a Home Equity Loan Work?
If your property is valued at a greater amount than the loan secured against it, a home equity loan unlocks this value. You can then use this as cash for the things you need! The risk to the lender is low, as there is security in your home. In return for this, you are rewarded with a low interest rate and fees. This is often referred to as a second mortgage.
Many people take out this option to pay for any urgent and unexpected medical fees or college tuition or perhaps even debt consolidating. If you feel like your personal debt is getting out of control, a debt consolidating home loan could help to remedy this problem. Your individual credit card or personal debts are all rolled into one personal loan, which is secured against your property.
Once you have paid out your credit cards and cut them up the temptation to go out spending has (hopefully) gone. Debt consolidating is a good way of making sure that you maintain good credit, or even as a step towards correcting a bad credit rating. A debt consolidating home loan is quite popular these days, they are much easier to get approved by a lender as there is a low level of risk involved for a bank.
Closed End Home Equity Loan
Many types of home equity loan exist on the market, most for the purpose of debt consolidating. Make sure you have reviewed these so you obtain the best product for your own personal needs. A closed end home equity loan is a product where you receive a one off lump sum on money. What you do with this is up to you, whether you decide to pay off existing debts as a way of debt consolidating or simply spend some money on yourself.
This amount of money is determined by the value of your property less any loans you currently have against it. Other factors include your credit rating and your ability to pay back the loan. Usually, you will have fifteen years to pay off a closed end home equity loan. There is also a balloon payment due at the end of the loan period.
Open End Home Equity Loan
Another option is a home equity loan line of credit, or an open ended equity loan. In this scenario you are able to borrow a similar amount to the close end loan that is the value of your property less the existing loan; however the loan works more like a credit card. The interest rate is variable in most cases.
You are able to borrow money and then pay it back - much like a credit card! This is a good option if you have a short term cash flow problem or are facing ongoing costs such as medical expenses.
Home Equity Loan Risks
In theory, the home equity loan sounds like a good idea if you need to free up some cash. It is not, however, without risks. Look out for predatory lenders; these industry sharks look for people with debt consolidating problems or with a low income and prey on them.
Often they stitch up clients with a bad product on a high interest rate with a multitude of fees. Make sure you protect yourself by shopping around, get the best product on the market to suit your own needs.