The Varied Uses Of The Home Equity Loans

The Home Equity loan is the best option for those who own their house. Borrowers in Britain have largely underused the Home Equity loan option and they are not aware of the value of their homes in generating cash for immediate use. The home equity loan option gives the borrower the flexibility to use the borrowed money for whatever purpose he or she wants to and there is no obligation by the banks as well to disclose the purpose for which the borrowed amount is used.

A home equity loan is a secured loan is also referred as the second mortgage. In the home equity loan, the guarantee that the borrower has to provide is his or her home. The more the valuation of the property the more amount of loan the borrower can have. The interest rate of the home equity loan is low and is thus quite cost effective for the borrower.

The home equity loan being a secured low rate loan is used in debt consolidation. The debt consolidation loan replaces a high interest loan to a low interest loan and this is possible by going in for the home equity loan.

Home equity loan for a business loan

Since the success rate of any new business is low lenders are not usually eager to give the loan but the home equity loan is a second mortgage loan and the lenders has the home as the guarantee, the banks prefer to give the business loan for the home equity loan. The home equity loan provides the new businessperson the capital to invest in his or her business venture. The most encouraging thing about the home equity loan is that it gives the borrower the benefit of tax deduction and there are some other tax benefits, which may prove profitable for the businessman in the business. When the businessman has paid all the borrowed money, he can again borrow from the lender using the earlier home equity resource and save significant amount of time and money. The home equity loan lets the borrower keep the funds in house and the rates would be lower.

Home Equity loan or line of credit for home renovations

The home equity line of credit loan is faster than any other loan schemes and has lower rates. This type of loan functions exactly like a credit card and the borrower can draw as much amount as he needs for the home improvements. Renovations like a swimming pool for the kids, a sprawling veranda for leisure during vacations and many more. The technical hassles in the first mortgage are more but in the second mortgage like the home equity loan, the lending process is relatively easy and speedy. The home improvement also lends the property greater market value and thus the equity of the home also increases. The high the appraisal of the home the higher the borrowed amount for the homeowner, thus the home equity line of credit is a double advantage for the borrower.

Using the home equity loan for buying a second home

The home equity loan lets the borrower do many things and one of these is buying a second home by having the first home as mortgage. When one goes for hunting loans for the second home the lending agencies cross checks all the credit reports and makes sure that the individual can repay the amount or has the capacity for repayment. When the value of the first home is good then banks tend to approve the home equity loan easily. The home equity loan is much better than the regular mortgage loans.

Types of Home Equity Loans Available

If you are considering tapping into your home’s equity to consolidate debts or do some home improvements, you should know your options. Below, you will find the three most common equity loan types available:

1. Home Equity Line of Credit (HELOC)

The first type is the HELOC. With this option a lender will give you a line of credit equal to a predetermined amount of your home’s equity. You can then draw money out as you wish and only make payments on what you take. This works well for long-term home improvement projects where you will need to frequently buy materials, but do not need all of the money at once. Typically these loans have adjustable rates tied to the prime rate.

2. Fixed Term Second Mortgages

This lump-sum mortgage gives you a certain amount of your equity at one time. Frequently, these loans are used for debt consolidation and can save borrowers hundreds of dollars per month. Usually offered in 10, 15, or 20-year terms, these loans often feature fixed rates ranging from a few points higher than conventional first mortgages to rates in the low double digits, depending on your credit rating.

3. The Over Equity Mortgage

For borrowers with no equity in their homes whatsoever, there is a third option: the over-equity mortgage. Although risky to lenders and consumers, these loans where you can borrow up to 125% of your home’s value can save you a lot of money when debt consolidating and can be great for smart, value-enhancing home improvement projects. Even with extremely high interest rates, these loans are still good options for borrowers unable to find unsecured loans that meet their needs.

Now that you know your options, you will want to carefully consider which one is right for you and make a wise borrowing decision.