When it comes to unsecured personal advances, borrowers frequently become confused between home equity loan against property. Both of these lending options come with an array of features designed to cover even high-end financial obligations. But there are some important differences separating them. Both home equity loans and personal advances can be secured by the borrower’s home. The only main difference is the amount of the interest rate, due to the risk-premium associated with both of these kinds of loans.
Home Equity Loan:
Usually, a home loan applicant applies for this type of financing when making a large purchase, like a new house or a car. In order to qualify for home equity loan, he must place the equity of his home as collateral for the requested amount. This equity is referred to as the “asset” in the lending equation. The borrower then pledges the asset as the collateral for the amount requested. Borrowers also have to pay for the interest on this asset during the period of time they have this security; therefore, the repayment schedule and terms will vary depending on each loan applicant’s financial circumstances.
A self-employed individual may use this type of borrowing facility in two main ways – to borrow money for a home and real estate renovation and to take a second mortgage on his primary residence. For first-time self-employed borrowers, the key advantage to this option is the chance to gain access to larger amounts of money, with shorter repayment periods. Borrowers have to first obtain a standard personal loan from their bank or another lender. They may then apply for a low-interest special loan against property at their local bank. If all goes well, then the borrower will secure a low rate with that loan, which will make the repayment process easier. On the other hand, if things do not go as planned, then the borrower has to take out a separate mortgage for self-employed mortgages.
Many tax benefits can be obtained if people borrow against their self-owned residential property. In some cases, these benefits may outweigh the cost of the mortgage loans. To be eligible for tax advantages, a borrower needs to prove that he or she will be using the funds for tax purposes only.
New Home Owners:
There are many advantages to securing self-directed new home loans. First, the borrower secures the equity in his or her first new home. This helps to build a credit history, which is especially useful in the case of people planning to buy another home in the future. Second, this type of loan applicant will be able to choose among a range of terms and repayment options. This means that borrowers will have greater control over how much they borrow and when they repay the loans.
Increasing Your Tenure:
Self-directed loans offer flexible terms that can be increased over time, if required. For example, in a two-year fixed term loan repayment option, the loan repayment duration can be increased by three years in case the borrower gets a job with an increased annual salary. Likewise, in case of a five-year renewable term option, the loan repayment duration can be increased by five years in the event that employment is better after the fifth year. In fact, the lender may offer to increase the tenure as per specific requirements.
People need not always stick to the original mortgage loan repayment plan. In fact, they can choose to repay the loan amount in intervals of one to five years. This implies that the monthly installments can either be spread over a longer period or in a shorter interval. Depending on the financial condition of the borrower and the interest rate offered by the lender, the repayments can take place over a fixed or a variable duration. The end result is that borrowers enjoy flexible returns with the lower risk associated with self-directed home loans.
Increasing Your Loan Term:
One can also enjoy more benefits by increasing the loan tenure. For example, people with ten years or more to repay the loan can opt for longer repayment periods. In effect, they will get longer loan terms and hence enjoy greater flexibility for a relatively higher interest rate. Moreover, the overall cost of the loan will come down over time. This means that homeowners will get more value for their money by opting for longer home loans.