Home Equity Loans
A Home Equity Loan is a loan where your home is kept as collateral instead of any of your other assets such as property or car. A Home equity loan is similar to second mortgage loan in the sense that it affects the ownership of your home. The value of home equity is worked out by subtracting the amount still owing on your mortgage from the current value of your house. If the value of your home is £300,000 and the outstanding mortgage amount is £200,000 a home equity loan will leave you with £100,000 worth of ownership of your home.
A Home Equity Loan is a loan where your home is kept as collateral instead of any of your other assets such as property or car. A Home equity loan is similar to second mortgage loan in the sense that it affects the ownership of your home. The value of home equity is worked out by subtracting the amount still owing on your mortgage from the current value of your house. If the value of your home is £300,000 and the outstanding mortgage amount is £200,000 a home equity loan will leave you with £100,000 worth of ownership of your home.
Home Equity Loans are usually repaid over a shorter period than first mortgages. Most commonly, mortgages are set up to be repaid over 25 or 30 years. home Equity loans often have a repayment period of 15 years, although it might be as short as five and as long as 30 years.
Types of Home Equity Loans
Home Equity Loans are categorized into two types:
- Second Mortgage Loan
- Home Equity Line of Credit
A Home Equity can be used for all kinds of things, from debt conolidation, home renovations, buying a car, towards education fees, medical expenses - all kinds of things. You can also use the money from a Home Equity Loan to fund the deposit to but another house.
Advantages of Home Equity Loans
- The major advantage of a Home Equity Loan is its low rate of interest. Since your home is in the custody of the lender, there is less risk of your defaulting.
- Regardless of the way a home equity loan is used, the interest you pay on the first £100,000 you borrow is tax deductible. Credit cards and other types of non-secured loans do not have this tax benefit.
- A second mortgage loan gets you a fixed amount of money all at once if you need it to cover a number of expenses.
- A Home Equity Loan can be used for many differnt things including home renovations or debt consolidation.
- Even if you have had bad credit It is easier to qualify for Home Equity Loans even as your house is pledged as collateral.
- Because your home is pledged as collateral, you can’t default on your Equity Home Loan. If you do so, you will lose your home.
- When your home is put up as a guarantee, your ownership margin will reduce.
- You also have to pay some other costs against the loan you get. These costs are similar to the costs you pay when you buy a house.
- Since you are pledging your home, you may have to consider insurance to cover payments just in case a problem arises. It is a good idea to review and plan your financial prospects ahead of time.
REMEMBER, YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT.
