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Getting a Home equity loan? Keep these factors in mind


A home equity loan is meant for those home owners who borrow money keeping their home as collateral. A home equity loan gives you the access to a large sum of cash that you can use up for other expenses or investment purposes. The home equity loan has the advantage of lower rate of interest, monthly payments that are tax deductible etc. Some times the cash available is up to 125% of the property value. For example, if you are a resident of Toronto, and are planning for a home equity loan, then make sure to conduct ample research so as to understand the procedure of getting such a loan and how it works in your county.

The home owners usually apply for a home loan for making bigger purchases like buying another property or going for a home renovation etc. Here are a few things that you should keep in mind while applying for a home equity loan:

Research and compare the rates

It is a wise idea to shop around for various lenders a little instead of hopping straight into the bank. Various lenders have different terms and conditions for the home equity loan; the rates also vary from one lender to another. Therefore the internet is a good way to do some research before going for a loan. You can also hire an independent broker who would do the job of research on your behalf. He would be able to get you in touch with those lenders who meet your demands most appropriately.

Be aware of the fine prints

It is of utmost importance that you read and understand the loan contract well before signing the papers. This is because; there is no reason to believe that all the lenders are trustworthy. Many lenders might add a few clauses in fine prints on the loan contract which were not explained to you earlier. Be aware of the balloon payments and the prepayment penalties associated with the loan contract. A prepayment penalty means if you return the borrowed amount before the expiry of the home equity loan, then you have to pay a hefty sum as a penalty. In case of the balloon payment, you must pay the entire principal by the end of the loan term. This becomes quite a burden for the retired hoe owners.

Make the repayments in time

There are certain processing charges that you need to pay while applying for the home equity loan. There are the loan documentation fees, the title search fees, the lawyer’s remuneration, and other such related fees. Make sure you are able to afford all such fees along with the regular monthly payments. If the home equity loan has a variable rate, then the fluctuation in rates can result in greater monthly payments. Therefore, make sure you are able to manage the entire process; else your credit ratings may falter to a great extent. That will result in a different danger financially.

Comments

Sara said…
Getting a home loan based on equity of the property is a good option. Such a loan will help you in paying off your unsecured debts such as medical debts, student loans, payday loans, credit card bills, utility bills, etc. In order to get a home loan based on equity of your property, you should have at least 20% equity in your property. If you cannot show at least 20% equity in your property, it may become difficult for you to qualify for a home equity loan. Apart from this, you should fulfil the required eligibility criteria of the lender to get a loan.
Anonymous said…
In Malaysia, the loan is known as home refinancing which maximum loan tenure is only 10 years for cash out portion.

For more information, refer to this link
http://loanstreet.com.my/learning-centre/10-year-limit-on-mortgage-refinancing-cashout

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