What is a Home Equity Loan?
Owning a house is the best asset one can possess. A house is an asset which can be used to support various financial needs. For situations like college education fees, house renovation and repairing, medical bill payment or any major requirements, your property can act as a solution.
Home Equity Loan allows you to borrow a considerable amount of money against the value of your residence. This is a secured loan as the lender can get back the loan amount by repossessing the property if the borrower defaults.
Types of Home Equity Loan
In two ways, you can get a home equity loan using your residence as collateral depending on your requirement.
Lump-Sum: You can avail a lump-sum as a single payment worth your collateral with an agreed upon fixed-rate of interest which remains the same until the end. You will have to repay the loan amount over a set period on a monthly basis. The value of your collateral is determined by the appraiser appointed by the lender.
Home Equity Line of Credit(HELOC): In this case, you can borrow multiple times the certain amount you want instead of getting a lump-sum. Once the principle is paid off, you can borrow again. A cheque or a credit card will be issued by the bank which can be used according to your convenience. The rate of interest is flexible and varies throughout the loan term.
Benefits of Home Equity Loan:
• Quite simple and hassle-free documentation.
• The rate of interest is lower than on personal loans and credit cards.
• Single payment of large cash with potential tax benefits.
How can you make it work for you?
Know Your Limits: Home equity loan is best for your if you have a steady and reliable source of income, and only then you will be able to repay the entire loan amount. Make a detailed plan of your income and expenses before applying for it.
Meticulous planning: If the money borrowed is put to proper use, it can become an asset while you pay off your debt. Careful planning will prevent you from defaulting.
How to find the best lender?
All public and private banks, and financial institutions provide Home Equity Loans. Do an online research, analyze and compare the rate of interest and the sum offered against your collateral by each financial institution.
Maintaining a healthy credit history will help you get a better home equity loan. Check your credit score to know your status and eligibility.
These are the basic factors that one must keep in mind before applying for a Home Equity Loan.