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What is a Home Equity Loan?
A home equity loan is a loan that is guaranteed by your home. Are you in urgent need for cash and want to get the same without selling off your home or property? Getting a home equity loan is a good way to do so.
Equity on your home is essentially the difference between the value of your home and the outstanding mortgage. Lot of finance companies today offer good deals on home equity loans, letting you borrow money based on the available equity on your home.
This type of loans product basically works on the idea that you use the amount you own within your property as collateral against a loan. You put it up as a guarantee to your lender that you can repay any loans. This allows you to free up the amount you already own within your property and use it as hard cash.
Most lenders will work out how much equity you have for you - but it's simple enough to do it yourself. All you need to do is to work out how much your property is currently worth and then subtract your mortgage from it. If you're not sure how much is currently outstanding on your mortgage, have a chat with your lender and they'll be able to help you out.
A home equity loan allows homeowners to access the equity in their primary residence without having to sell the property. Equity is the difference between what a home is worth and what is owed against it. Traditionally, home equity loans were called second and third mortgages.
You might have heard about using these types of financing products to meet your financial goals. Most home equity loans are simply second mortgages, structured either as a lump sum loan similar to a first mortgage, or as a line of credit.
Home equity loans are also referred to as "Equity Release Scheme". The money you get on a home equity loan can be used for a variety of purposes such as to fund home improvement, buy a new car, consolidate your debts or finance a travel plan.
Home equity loans are particularly useful for the elderly. Elderly people can release the equity on their property and use the money to supplement their pension. This additional amount can be used to pay for the cost of residential care if they need it.
Home equity loans allow the elderly to borrow money at relatively low interest rate and with a low monthly repayment, thus easing the financial burden considerably in the old age. Under certain schemes there is no need to make a repayment at all. Depending on the equity in the home, these lenders simply reclaim the loan and interest by selling their house when they pass away or move on.
If you're looking to borrow money this is probably one of the easiest and most cost-effective ways of doing it. Lenders like giving out home equity loans because they know that they'll get their money back whatever happens.
This all means that you can get the most preferential rates and deals in comparison to other loan products. Another big advantage is that this is a way of freeing up cash that is already technically yours. Without any of the hassle or costs associated with moving.
The cost of the loan will depend on many factors including your personal circumstances, the amount you wish to borrow and over what period you wish to repay back the loan.
In a typical home equity loan, the home is used as collateral against the loan, meaning that should you be unable to maintain the loan repayments, your home will be at risk.
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MORE RESOURCES updated Thu. March / 04 / 2021
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