Facts About Home Equity Loans That You Need To Know
Obtaining a home equity loan can be a great way to access extra cash, but this type of lending isn't right for everyone. Below are five important things to know about home equity loans.
1. They Are Not the Same as Home Equity Lines of Credit (HELOCs)
A home equity loan is like a HELOC in that both types of lending allow you to use the equity in your home as collateral to secure financing. Where the two types of financing differ is in how the loans are structured. A home equity loan provides you with a one-time sum of cash, whereas a HELOC allows you to access funds on a revolving basis -- much like a credit card.
2. They Carry Higher Interest Rates Than Mortgages
Home equity loans generally have lower interest rates than credit cards and personal loans, but you can still expect to pay more interest on this type of financing than you do on your primary mortgage. This is because they are considered a second mortgage, and therefore carries higher risk for lenders.
3. You Could Lose Your Home if You Don't Repay It
It's important to keep in mind that by using your equity to secure financing, you are putting your home at risk. If you default on your home equity loan, your property could be foreclosed on. For those who already owe significant debt, or are even facing bankruptcy, this type of financing may not be the best option.
4. You Can Borrow Up to 80 Percent of the Value of Your Home
The amount of financing you can get approved for depends on how much equity you have in your home, your property's current market value, and the outstanding balance on your mortgage. Most lenders will require you to have at least 35 percent equity in your property and allow you to borrow up to 80 percent of its appraised market value. The balance owing on your mortgage will be deducted from the maximum amount that you can borrow.
5. Used to Consolidate Debt
If you have high-interest debt, such as credit cards or an auto loan, a home equity loan can be used to consolidate all of your payments into a single, low-interest monthly amount. This can make your monthly budgeting easier, as you'll only have one payment to keep track of instead of.
Contact us today, and our lending specialists can help you determine whether a home equity loan is the right choice for you.Request Mortgage Info