Yes. Home equity loans are certainly worth considering if you’re paying high rates of interest or you’re struggling to meet your monthly repayments on other debts.
If you are a homeowner with equity in your home and you have sufficient income, you can apply for a home equity loan. A home equity loan allows you to borrow some or all of the equity in your home and is generally separate from your main mortgage (these loans are often called ‘second mortgages’).
The lender takes your home as security for the loan and you can typically borrow £3,000 or more over a term of 3 to 25 years.
One of the main advantages of a home equity loan is that the interest rates generally charged are lower than other types of borrowing. This is mainly because the lender takes a legal ‘charge’ over your property as security, allowing them to repossess and sell your home to recoup their money if you fail to keep up your repayments.
As home equity loan rates are often lower than other types of borrowing, they can often save you a significant sum in interest charges. For example, you may be paying 15 to 20 per cent interest on your credit card balance, over 20 per cent on a bank overdraft or 7-12 per cent on a personal loan.
In addition, many unsecured debts may require you to make significant monthly repayments. You may have a personal loan over a short term or have substantial minimum payments on your credit cards. In a difficult economic climate, it may be tough for you to meet all the repayments on your debts.
So, a home equity loan can help you consolidate these debts into one affordable monthly repayment. You can spread your repayments over a longer period, bringing your monthly finances back under your control.
If your unsecured debts are at low-interest rates (perhaps you have a 0 per cent deal on a credit card) or you expect to be able to repay your debts in full in a short period of time, you may be better off continuing with these debts than consolidating them into a home equity loan.
You should also bear in mind that home equity loans are secured on your property, meaning that your home is at risk if you fail to keep up repayments on your loan.
To access the money tied in your home equity and get a great loan rate, book an appointment with the Mortgage Genie.