If you are struggling to scrounge up enough funds for a large, upcoming purchase, then you might want to consider a home equity loan. These types of financial arrangements are used by many different types of people and they could be a good choice for you, as they have multiple applications of use. Before you get started, it is important to learn what are home equity loans and whether or not you are a good candidate for such financial options.
Requirements for Borrowers
First of all, home equity loans require you to be a homeowner, since these loans use your home equity as collateral for the loan. Depending on your property value, this type of loan could help you to cover expenses for something like a new car, education, medical issues, and so on. Be aware that the true equity value of your home will diminish when you use it as collateral in a home equity loan. Moreover, borrowers should be in good financial standing, with a stable credit score and a history of wise spending and saving habits.
How it Works
Furthermore, these home equity loans come in two varieties. The first is a closed-end loan, and is the more traditional of the two and is the one most borrowers opt for. The second type is open-end, and is actually a home equity line-of-credit (HELOC.) Unlike a the loan, the line-of-credit doesn’t have a fixed interest rate, nor is it a lump-sum amount. While both types are also called second mortgages, the home equity loan is not a revolving line-of-credit; borrowers will need to determine when they will pay each month and how much in order to refinance their home. In some cases, the home equity loan may replace the traditional mortgage loan.
Things to Remember
The home equity loan option may be the right choice for you, but remember that there are administrative and legal fees to pay. For instance, your financial institution will probably charge you an appraisal fee for speaking with one of their financial advisers. There are also title and closing fees to keep in mind, as well as charges if your payments are inactive, halted, or late. Sometimes valuation fees on the home or property will be waived, but it’s important to speak to your financial professional about this. These are all things to take into account as you decide if the home equity loan option is the most suitable one for your circumstances.
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