Home Equity Loans Enable Access to Extra Money

By: Dina Wilson

Over the years, you have made many balance payments towards the loan that you took for the home. Since then, the market value of the home has also increased substantially. Consequently, your home has accumulated fair amount of equity, which is the amount left after subtracting outstanding payments towards the home, from its current market value. You can take out this extra money as a loan.

Clearly, you release the extra mount in your home, when applying for home equity loans. The loan finds its use in various purposes like paying for child's tuition fees, clearing some old debts, paying for wedding or holiday expenses or purchasing a car.

These are second mortgage loans, as you borrow the money against the same home. The loan amount will depend on the amount of equity. Because the loan providers carry little risks against your home, the interest rate on the borrowed amount remains low. However, you must have an excellent or good credit history to assure low rate. These loans carry longer repayment duration of 5 to 25 years. It would be unwise to drag the loan for longer duration, as you may end-up paying high interest.

If your credit history has blemishes of late payments, defaults, arrears or CCJs, then make efforts to improve your FICO credit rating and apply for these loans with improved score. Otherwise, interest rate will go higher for you.

Do not apply for home equity loans in haste. Instead, first search the loan market thoroughly. Apply for the rate quotes of numbers of such lenders. Ask for their addition costs. Compare both interest rate and the costs to find out a suitable deal. You can use these loans for improving your credit worthiness. Hence, ensure that you make timely payments towards the loan installments.

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