Learning More About Home Equity Loans

Home equity loan provides homeowners the option to utilize their equity to invest it on other things. Basically, it is a debt. One can withdraw money equivalent to that of their equity and use their homes as collateral. Then they can pay back what they have borrowed over time with interest but with several tax advantages.

Many people have found home equity loans very useful to finance their major purchases or to pay off other debts. However, the use of this kind of debt is not limited to the aforementioned. It is a very useful tool to sustain your cash needs and can be very helpful during times of crisis. But one has to have the capacity to payback what was borrowed or in the end, one’s home can be foreclosed.

Here are some of the specific reasons why people opt to get home equity loan:

1. They want to improve their homes but they have no extra cash for the meantime. It is the best option to use when you have to overhaul the house especially if big problems are recurring and has put your family’s health and safety at risk.

2. They want to pay off their medical bills. Some people may have trouble paying off their hospitalization because of the gravity of one’s illness. Just to be able to get out of the hospital and go on with one’s normal course of life, equity can be taken out as cash to settle the bills.

3. They want to consolidate their debts and pay a smaller interest rate. Some people may have been burned with paying off their loans from different lenders. And some aren’t too happy with the amount they are paying because of their interest rates. Hence, consolidating debt can be done by simply taking out cash from your equity and pay them off from one single lender.

Those are just some of the examples of home equity loan. However, before embarking in this kind of loan, it is best that you seek financial advice from the experts. True it is very attractive for many people and considering the low interest paid is tax deductible, everyone can really be drawn to this kind of debt.

Remember, this kind of loan uses your home as collateral. If you are in deep financial trouble, you may want to think twice or even thrice before getting this kind of loan. You also have to check the trends of the market. If you draw 80 percent of the equity of your home (which is the allowable value), and the house values continue to drop, you can end up owing the bank more than the value of your home.

Home equity loan should be used when you have a steady job, if the real estate market shows some stability and if you can afford the additional cost considering your existing monthly expenses. Be smart and do not abuse such privilege. If you are in doubt, again go back to your financial advisers; talk out the risks and effects of the loan to your financial health.

How Do Equity Release Mortgages Work?

Now that mortgage providers are asking for such high deposits, the price of even the smallest starter home is now out of the reach of many first time buyers. That, plus the fact that house prices are now on the increase again, means that more and more parents are looking to equity release mortgages to provide the cash to give their children a helping hand onto the property market. If you are looking for a way to get your hands on the equity that is tied up in your home, here are the facts that you need to know.

What is an equity release mortgage?

An equity release mortgage unlocks the value that you have tied up in your property and turns it into cash, which can be used for any purpose you choose. Such arrangements are available to homeowners who are age 55 or over and they usually require no monthly repayment, they are repaid from the proceeds of the eventual sale of the property.

Why would you need to use an equity release mortgage?

Over the years, the price of houses has risen fairly steadily, which has led to many older people finding themselves in the situation of having money tied up in their property, but still being unable to afford to help their children buy a property or even pay for their own health care. An equity release plan enables them to realise that cash, but does not require them to move out of their home.

What types of plans are available?

Different providers offer different types of schemes and the main types are as follows. There are home reversion plans, where you sell the property, but you still have the right to live in it. Drawdown lifetime mortgages are schemes where you retain ownership of the property and borrow against the value of the property when you need to and, a simple lifetime mortgage, is one where you drawdown all the equity value in one go. In all cases, the value of the loan, plus the interest, is repaid when the property is sold.

Are there any downsides to equity release mortgages?

Equity release plans used to have a bad reputation because people didn’t really understand what they were signing up for. Today, however, they are properly regulated and the terms are well documented by lenders. When you take out a mortgage release plan, you are borrowing money and there will be fees and interest payable. That means that are reducing the amount of money that your family will inherit and the family home will be sold to repay the loan. You should also make sure that any money you receive will not impact on your state benefit payments.

How do you find the best equity release mortgage for you?

As is the case with any type of mortgage, each lender has their own particular schemes with different terms, different fees and interest rates, and different degrees of flexibility. Most schemes will still be available to you even if you are not in the best of health and with many, you can still move home if you wish to. The best thing to do is talk to a financial advisor, tell them about your circumstances and your requirements, and they will be able to recommend the best equity release plan for you.