Equity in your home can do wonders for you. Yes, it is true. If you are a homeowner with a good credit history, you can make use of the equity in your home to get the money you need.
Home equity loans provide borrowers with a solution to release the equity in their home, which is usually available upon sale of the house. You need not sell your home to get the money you need. Home equity loan will be secured on the borrowerâ€™s home, without affecting his or her existing mortgage. This is also known as second mortgage charge.
A borrower can use a home equity loan for several purposes. It could be for financing college education or going out for a luxurious holiday. Home equity loans can be used for consolidating debts. It solely depends on the borrower, how he plans to use the loan.
Home equity loan [http://www.ukfinanceworld.co.uk/uk_home_equity.html] is also referred to as â€œEquity Release Schemeâ€ as it helps in releasing equity from the home. Equity release can be categorized into three areas: -
- Loans and mortgage â€“ With a home equity loan, one can borrow a percentage of his or her homeâ€™s value. A borrower can use this loan for any purpose he or she desires. Using a home equity loan for making improvements at home can be a good idea. These improvements may increase the value of the home. Further equity will be helpful in refinancing loan.
- Home Income Plans â€“ This is used to generate monthly income. The loan will usually be invested in an annuity-based investment that pays your income plus the interest on the loan.
- Home Reversion Schemes â€“ If you wish to remain in your home and need to supplement your regular income, you can consider a home reversion scheme.
Home equity loans can be useful for the elderly people too. They can release the equity in their home and can use the money to add-on to their pension. Home equity loans allow the elderly people to borrow the money at relatively low rate of interest and manageable monthly payments.
With a home equity loan, a borrower gets the option to take the loan in lump sum or through credit line. Under the lump sum scheme, the entire loan amount will be given to the borrower at once and interest becomes payable on it immediately. A credit line or a line of credit option is popularly known as HELOC (Home Equity Line Of Credit). HELOC provides borrowers with the choice to borrow funds in the manner that they choose, up to a maximum credit limit for which the borrower has qualified. The most preferable feature of HELOC is that the interest is charged only on the amount of loan used and not on the entire loan amount.
The biggest advantage of a home equity loan is, that the interest on it is tax deductible. Another important advantage of taking a home equity loan is that it offers a relatively fast and easy way to get the cash you need at a very low interest. Low interest rate helps in controlling the cost of loan. Home equity loan is a way of freeing up the cash from your home, without any of the hassles or costs associated with moving.
You need to know few things before you apply for a home equity loan. Find out whether you have enough equity in your home to apply for the loan. In addition to this, more you know about applying for and negotiating for the home equity loan, the better deal you will be able to get.
To avail the benefits of home equity loan, you should firstly talk to your current mortgage company about the options available to you as a borrower. Nevertheless, do not stop there; you need to make some efforts to get the best deal. Search for various lenders such as banks and online lenders who offer home equity loan and collect loan quotes from them. Compare the loan quotes and choose the one that matches your expectations to the best.