What is a home equity loan?
A home equity loan is a line of credit offered to homeowners who have equity on their homes, who need to access funds.
Equity is the difference between the realistic market value of your property and the outstanding amount on your bond.
The bank will approve individuals to borrow up to a certain amount of your home. The equity on your home stands as collateral for the loan, so if you fail to make repayments on the home equity loan, your home could be repossessed.
These loans usually appeal to borrowers who find that they can borrow relatively large amounts of money and they can be regarded as a type of second mortgage.
What are the benefits of getting a home equity loan?
A home equity loan typically has a lower interest rate compared to credit cards.
This type of loan is usually easier to qualify for because the bank has a history of your payment behaviour as well as your personal and contact details.
When you get a home equity loan you get a lump sum of cash, giving you the financial freedom to meet all your needs.
You get to repay the loan over time with fixed monthly payments.
Fixed monthly payments allow you to budget better. Your repayments remain unaffected by fluctuating interest rates.
Interest rates are set upfront so you know exactly how much you can expect to pay.
You can use the home equity loan for anything you want.
Tips to keep in mind:
- Before you apply for a home equity loan, compare the benefits of choosing credit cards or a personal loan.
- Make a detailed plan of your income and expenses.
- These loans are best for someone with a short-term expense.
- Be sure that you’ll be able to pay the interest once your rate rises.