If you are a homeowner, the ‘equity’ you have in your home refers to the difference between the amount you still owe and the market value of the home. The more of your mortgage you’ve been able to pay down, the more equity you have available to you.
Your home equity becomes very important if you are interested in home equity loans. These types of loans have become quite popular because you can borrow up to 80% of your home equity – meaning you can get a substantial loan.
How It Works
Home equity loans are loans where you, the homeowner, use the equity built up in your home as collateral. Home equity loans are often referred to as ‘second mortgages’ because in essence, that’s what they are.
They work in the same manner as any other kind of loan, only it isn’t your credit rating or your income that’s securing the loan, it’s the equity in your house. You will still have a term, an interest rate, a payback schedule, penalties and all the same elements of a standard loan.
Reasons
People decide to take out home equity loans for all sorts of different reasons. One reason for choosing this avenue to obtain a loan in the first place is because the interest rates are often lower than other forms of credit. Some homeowners are more than capable of getting different types of loans, lines of credit or credit cards, but the home equity loan just makes sense.
As for the reasons a loan is required at all? Take your pick:
- Major home renovations
- College tuition
- Medical bills
- New car
- Consolidate other debts
The desirable interest rate of a home equity loan makes it a popular choice for paying off higher interest credit cards and other forms of credit. If you’re taking this route, remember to use caution with that empty card once you’ve paid it off!
Home equity loans can help you tremendously, but if you just end up using the credit you paid off, you’ll be in even deeper.
However, if you have a steady source of income and obey the terms of your loan, using your home equity is a valuable way to free up some cash for whatever you need. Fast Access Finance offers home equity loans with an average term length of 1 year. The repayment amounts can be tailored to suit your budget. Click here to apply for a home equity loan online!