What are a home equity loan and credit line In this context, we discuss the home equity loan and credit line. There are different types of loans according to their guarantee and according to the purpose for which you are going to use the credit. TYPES OF LOANS WITH A MORTGAGE GUARANTEE ARE Debt reunification reunifying different debts and payments in a single monthly payment installment. Acceptance of inheritance uses the property of an inheritance to be able to finance the costs, expenses, and taxes of the acceptance of inheritance. Renovation loan  The home equity loan can also be used to finance renovations of the same property that is used as a payment guarantee. Loan for people in ASNEF ASNEF is a financing alternative by which they can obtain the necessary liquidity to pay off your debts, finance your projects, or assume day-to-day expenses. Loan for companies  use the endorsement of offices, warehouses, land, or any other type of property to obtain financing for the business

TYPES OF LOANS ACCORDING TO THEIR GUARANTEE OR TYPE OF GUARANTEE

In a home equity loan there is the possibility of guaranteeing the credit with different types of properties or real estate: Home Equity Loan: You can use your home as collateral for a home equity loan. Apartment guarantee Loan: If you have an apartment that you own, you can use it to guarantee your loan with a home equity guarantee. A loan with commercial premises guarantees: use the guarantee of commercial premises to obtain a loan with a mortgage guarantee. The loan with an industrial warehouse guarantee: It is a good option for companies and individuals who have a warehouse and need financing. A loan with a parking guarantee L: a loan with a mortgage guarantee with a parking lot. Land guarantee Loan: a loan with land owned and obtain an amount according to the appraisal fee of the land.

HOME EQUITY LOANS

A home equity loan is a loan for a fixed amount of money that is secured pay for your home. You repay the loan in equal monthly payment over a fixed period. In the same way, that you pay your original mortgage. For example, whoever applies for a loan can put their house as collateral, and whoever lends the money can collect on said property in case the borrower does not fulfill her obligation. With a home’s equity loan, the lender advances the entire loan amount to you, while a home’s equity line of credit provides you with a source of funds that you can draw on as you need them.

Example:

When considering taking out a home’s equity loan or line of credit, shop around and compare plans offered by banks, savings and loan institutions, credit unions, and mortgage companies. Searching and comparing different options can help you get the best deal. So, Pay particular attention to fees, including loan application or processing fee, origination or underwriting fee, lender or financing fee, appraisal fee, document preparation and filing fees, and broker fees.

TYPES OF HOME EQUITY LOANS

Generally, there are three types of home equity loans available to seniors: a home equity line of credit, a second mortgage, and a reverse mortgage. With a home equity loan, the borrower uses the equity in his property as collateral. A home equity loan is often used to finance large expenses, such as renovations, medical care, a new car, etc.

Second mortgage

The equity in a property can be used as collateral to secure a second mortgage for that property. The bank then issues a check for a lump sum equal to the available equity in your property. The use which you make of it is at your discretion. Usually, a second mortgage has to be paid off within a certain period (the term) and comes with a fixed interest rate. After you receive your loan proceeds, you must make a monthly payment on your second mortgage until it is fully paid off.

Home equity lines of credit

A home equity line of credit – also known as a HELOC (an acronym for Home Equity Lines of Credit) – is a revolving line of credit that looks a lot like a credit card. In line of credit, your payments are based only on the amount you borrow and not on the total amount available. It is mostly similar to a second mortgage. However, the issuing financial institution does not release the funds as a lump sum. You can access your money as you need it or at a specific time for a specific reason.

 Reverse mortgage

A reverse mortgage is a loan that allows you to access a sum of money based on the value of your property, without having to sell it. Unlike a traditional mortgage obtained from financial institutions, no principal repayment period or interest payments are necessary as long as you own your home.

Requirements to guarantee a loan with a property

  • The candidate must be:
  • To be over 18 years old
  • Be the owner of the property that will be used as collateral
  • Property is free of charges or has at least 80% of the mortgage paid

HOME EQUITY LOAN DOCUMENTS

  • Identification document
  • Recent home appraisal report no more than 3 months
  • IBI receipt
  • Registry check

HOME EQUITY LOAN ADVANTAGES

One of the advantages of the home equity loan is that as it is a secured loan.
  • Agility: obtain the loan disbursement with few additional requirements.
  • You can continue living in the house as collateral, or even sell the property while we pay
  • The repayment period and terms are comparable to those of a mortgage (between 5 and 30 years)
  • The amounts are higher than those offered in other types of loans.
  • Many offer low-interest rates, which make paying your loan easy and considerable.
  • It does not necessarily imply buying a home, it can also be to remodel the current home if you have one.
  • The loans are long-term, which implies that the installments are adapted to your purchasing power.
  • Obtaining your own home is important for anyone regardless of whether they live alone or with a family.

DISADVANTAGES 

Although mortgage credit is good, it also brings with it disadvantages such as:
  • Long-term financial stability is important and this is unpredictable as no one knows how your situation can change.
  • Arrears in payments generate interest on arrears, which is regularly very high.
  • These are given regularly to anyone of legal age as long as they have the required purchasing power.
  • They require fire and earthquake insurance that only covers the paid portion of the mortgage loan.

BE-AWARE (SOME HARMFUL PRACTICES OF HOME EQUITY LOANS AND CREDITS)

Be careful, from some lenders who target elderly, low-income, or credit-poor homeowners – and try to take advantage of them using deceptive, unfair, or illegal practices. Be careful and keep an eye out for the following practices: Repeat loan: The lender encourages you to repeatedly refinance money. Every time you refinance, you pay additional fees and interest points, and your debt increases. Insurance package: Avoid the addition of unnecessary credit insurance or other insurance products. Jack-in-the-box: Before setting of loan term avoid accepting higher fees, especially when you sign the papers to complete the transaction. Disposal of your mortgage amortization: The lender grants you a loan based on the mortgage amortization of your home. If you can’t make your payments, you could end up losing your home. CONCLUSION In conclusion, home equity loans are a recommended option only for those who wish to keep their home at all costs for the next few years. Regardless of the fact that in the future the chances of recovering it are not exactly 100%. It is the best alternative if we need the money and we cannot access a personal loan.

FAQS

Difference between Home loan or home equity loan?

Home loan

Loan that is requested from the bank to pay for the purchase of a home.

Home equity loan

Some banks grant home equity loans however they have strict rules for returning the money. Home equity loans are an alternative method of financing where the only condition is to be the owner of a property. You put as collateral a property or property that you have previously purchased. It is not necessarily have to be for the purchase of a home. Home equity loan can also for some other purposes.

How much interest will pay on home equity loans?

Loan that you request from an entity to finance any project. The amount of the home equity loan depends directly on the property that is provided as collateral. The interest on home equity loans is fixed. You will always have the same interest until you complete the repayment period of the loan. The entities offer an interest between 9% and 13%. It will vary depending on how much money you request and for how long time? Although it also depend on each financial institution or lender and of each property in particular. You must keep in mind that to this interest you must add the management costs. Such as the home appraisal fee. As the maximum amount of a loan with a mortgage guarantee will depend mainly on the appraisal of your home. An appraiser determines what the exact value of the appraisal is? Therefore what maximum amount you can access with your loan.

Difference between fixed-rate loan and variable interest rate loan?

THE FIXED-RATE LOAN

  • A fixed interest rate loan is a loan where the rate is fixed from the start. That does not undergo any variation during the entire term of the loan.
  • These can vary from 5 to 30 years and vary according to several criteria. The duration of the loan, the personal loan contribution, the region, and the profile of the investor.
  • The fixed-rate also makes it easier to compare the different loan offers on the market.
  • A fixed interest rate loan guarantees the stability of the interest rate over the life of the loan.

THE VARIABLE RATE LOAN

  • A variable rate loan follows the evolution of the financial indicator on which it indexed.
  • The variable interest rate loan is cheaper at first. However, the risk exists when the rate goes up and becomes higher than that of a fixed rate loan.
  • The short-term loan contract, avoids the risk of experiencing a rise in the variable rate. As it is estimated that the first years of the loan allow savings to be made compared to a fixed rate. Because the variable rate is initially lower than the fixed rate.
  • The variable interest rate revised according to the evolution of the Euribor index, both upwards and downwards, at each period.

What is a capped rate?

The capped rate loan is a loan whose rate is variable but “secure” because the variations limited. The base rate of a capped rate is higher than a variable rate in return for greater stability. The cap is an option that can attached to a variable loan. A capped rate is a tool that allows you to limit changes in the interest rate to a certain proportion. However, the capped rate loan is less risky in that the capped rate cannot exceed a certain ceiling. Your rate will be subject to increases or decreases but your monthly payments cannot exceed a certain amount. But you can benefit from a reduced rate if economic conditions are favorable. The capped rate is like your safeguard: check the cap carefully to limit the risks.

How to get best home equity loan?

Before buying an apartment or house, most people find out about current mortgage rates to find out how much they can borrow. For best rate, you need to have the best possible record that will allow you to approach the best current home equity loan rate available on the market. Here are some tips to get the best possible rate. Personal contribution: Finance part of your purchase with a personal contribution. Zero rate loan : it will allow you to borrow a portion of the necessary amount of money for free. PEL and CEL: take advantage of loan rights if the proposed rate is attractive by your PEL and CEL. Other assisted loans: It allows you to obtain ultra-competitive rates for a portion of your loan.  Limit your debt ratio: Always try the monthly payment of your loan should not exceed one-third of your monthly income. Stable professional situation: You are more likely to obtain a better credit rate by being a civil servant or on a permanent contract.
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