What to Know about Home Equity Loans By Michael Osland

An equity loan or home equity loan is a consumer debt that you borrow against your share in the home. The lending amount can vary based on the property’s current market value and the payable mortgage balance. You can avail of this loan for a fixed rate compared to home equity lines of credit or HELOCs, whose interest rates vary. As soon as you receive a loan, you can start paying off the amount every month for a fixed interest rate. It works like the original mortgage only. Some experts say that these second mortgage loans are quite like personal loans as both of them charge a fixed premium rate and are easy to use for almost every need.

Michael Osland points out that home equity loans can be even cheaper than personal loans because they have your home as collateral. 

An overview of home equity loans by Michael Osland

The pros

If you are a responsible borrower, you can benefit a lot from this. It comes in handy when you have a stable income source to repay the amount, premiums, and tax deductions. Since it is a form of secured debt, you can qualify for one quickly. The lending agency can check your credit history and evaluate your home’s value to determine the loan amount it can sanction. The interest rate on the second mortgage can be higher as against the first mortgage. Still, it is relatively cost-effective than other consumer loans and credit cards. That’s why these loans have become popular.

Michael Osland adds that these can be an ideal choice if you have clarity about the amount of money you need and where you will use it. For example, you may need it for home remodeling, debt consolidation, or college education funding.

The cons

If you have become habituated to spending, borrowing, and burdening yourself with debts, the easy availability of home equity loans can be enticing. Some lenders refer to this scenario as reloading. You take another loan to cover the cost of existing debt or use extra credit to make additional purchases. As such, it can set the cycle of debt rolling beyond control. Another risk is you can eye a larger lending amount even without an actual need.

The eligibility criteria 

To qualify for this consumer debt, you have to satisfy specific requirements. You need to have about 15% to 20% share or right in your home to borrow money. Your impressive credit record can get you a loan for a competitive interest rate. Besides, the lender should find you as low risk, and for this, your debts have to be fewer. Handsome income and excellent payment history can further benefit your cause.

In the end, when you seek a loan, make sure to remember that lenders have to abide by state and federal laws for lending. Also, interest rate charges can vary from one state to another. Make sure you shop for it with different lenders to get the best deal in your favor after proper comparisons.