There can be times when you are in dire need of money for your bulk expenses, be it a wedding or home remodelling. Extricate yourself out of problematic monetary situations using your house. Owning a house is the best investment to make, as you can rely on your home at the drop of a hat. But how can your house lend a helping hand to become your saviour? You might be inquisitive about the same. Here is all you should know about home equity loans. 

What is a home equity loan?

Home equity loans are a second mortgage that allows borrowers to use their home as collateral. You will receive a lump amount depending on the equity of the house. You might wonder how the equity is estimated. The equity of your home is calculated by the difference between the value of your property and loan amount that you owe. The interest rates are lower as your house is the collateral and it secures the loan. Furthermore, the chances for you to qualify for a home equity loan is higher as you are pledging your house, which is a major asset. 

Benefits of home equity loans

The main advantage of a home equity loan is that the interest rates are lower when compared to personal loans and credit loan. If you are using the loan amount to remodel the house, then the interest rates are tax-deductible. However, remodelling also adds value to the property.  Keep in mind that the loan amount is given to you as a lump amount which can be used for immediate expenses in great measures.  To add to that, the interest rates are fixed, meaning you can pay a standard amount monthly, offering a scope to manage your budgets. 

Disadvantages of home equity loans

The value of your house will rarely depreciate, but in such uncommon situations, the risk of repayment will be high, and you will end up losing your house. Overspending becomes a risk if you have a home equity loan. Sometimes, closing costs may be expensive. Moreover, using your house as the collateral adds to the stress of repayment. 

All about HELOC

HELOC stands for Home Equity Line of Credit. This is often interchangeably used with home equity loans. But there are slight differences between the two. HELOC also offers a loan with your house as collateral but does not give the entire amount in hand. This works more like a credit where you can withdraw the money during a specific period established by the lender. HELOC may come with fixed-rate or variable interest rates which is typically in the hands of the lender. In this method, there are two phases; one is the withdrawal phase where you can take money and pay a lower interest rate. The second phase is the repayment phase, where you cannot withdraw any amount but have to pay a fixed monthly interest. Unlike the typical home equity loan, HELOC may charge for a maintenance fee. 

How to apply?

Start the application process either in person or online. Your banker will contact you for initial information. Later you will be given a tentative quote by the banker and any doubts regarding the process will be clarified. The next step is to submit a few documents including ID proof, photo ID and address proof. The financier will verify these documents. It is now the role of the bankers to work until the loan is processed. As the end step, you will have to sign a few documents and receive the money.

Eligibility criteria for a home equity loan

There are few factors that will determine your eligibility for home equity loans. You should have a permanent job with a stable income. Even if you have changed multiple roles, a steady income is an assuring factor to sanction your loan. Each lender will have a metric for the debt to income ratio that will be a deciding factor. Make sure to be convincing about the reason for equity loans. It could be for education, remodelling the house, to pay off the pending debts or retirement. The reason behind taking a home equity loan will give an edge to decide about the tax deduction on interest rates. 

Home equity loans emphasize why investing in real estate property is a discerning option. But it is important to apply for a home equity loan only when there is an absolute need as the risk of taking back your house will add more stress. So what are you waiting for? Invest in real estate today and reap the benefits! Head out Lancor for spectacular properties in the top localities of Chennai