Home equity loans have lots of advantages over other forms of borrowing including their cost, flexibility and underwriting criteria.
Home equity loans are loans, which are secured against your property. The lender takes a legal ‘charge’ over your home giving them additional security that they will recoup their money if you fail to keep up your repayments.
As the lender has this additional security, the interest rates on home equity loans are generally lower than other types of borrowing such as overdrafts, personal loans or credit cards. This makes secured loans the perfect solution if you’re looking to consolidate other borrowings that you have at high interest rates.
In addition, home equity loans can typically be arranged for a larger amount than personal loans and they can be taken over a longer term. Depending on the equity that you have in your property you can often borrow £3,000 to over £100,000 with a home equity loan and spread your repayments over 3 to 25 years. Personal loans are typically for smaller amounts and have a repayment term of 3-7 years.
Home equity loans are also often easier to agree than remortgages or unsecured loans. Remortgage lenders have tightened their criteria over recent years and it is harder than it has been for some years to get a remortgage with a High Street lender. In addition, unsecured loans and credit cards are also increasingly difficult to obtain, particularly if you are self-employed or if you have bad credit.
As a home equity loan requires you to offer your home as security, lenders are more likely to get their money back if you fail to keep up your repayments. This means they are also more likely to consider applications from self-employed people or those with bad credit.
Bear in mind that a home equity loan is secured on your property, meaning that your home is at risk if you fail to keep up repayments on your secured loan.
Finally, home equity loans can be cheaper to arrange than a remortgage. Remortgages often have significant set-up charges such as arrangement, valuation and legal fees and many deals have considerable ‘early repayment charges’ if you want to pay the loan off early. In contrast, home equity loans typically have much lower initial costs and you will generally pay no more than 1-2 months of interest if you decide to repay your loan before the end of the term.
To access the money tied in your home equity and get a great loan rate, book an appointment with the Mortgage Genie.