A home equity loan is a type of loan in which the borrower uses the equity of his or her home as collateral. They are typically used for home repairs and improvements, but can sometimes be a last resort to consolidate debt or lower debt payments.
So people are starting to turn to the equity locked up in their own properties, which is valuable to the banks and credit companies. But first, what is a home equity loan and how does it work?
Home Equity Loans
A home equity loan is a typical loan in most ways; however, there is one big difference that sets it apart – it’s actually secured against the value of the equity in your home itself. In some ways, this makes it a risky proposition, but it does allow for greater freedom and larger credit amounts to be secured.
The loan amount is based on the value of the property after an independent appraiser has evaluated the property value.
These types of loans come with collateral such as tax deductible interest payments for the borrower as well as asset backed securities issued by the creditor.
So, a home equity loan can release the cash held in a property for the borrower to use in any way desired using the property as security against the loan.
Who Provides Home Equity Loans?
Who are the best home equity loan companies to approach, should you decide to go this route?
When selecting a lender there are several things to consider.
The most important is the reputation and integrity of the lender itself.
Most of us think we can spot a shark from miles away, but it’s been well documented that there are many wolves wearing sheep’s clothing in the home equity loan market, so doing one’s homework is an absolute rule of thumb.
Your bank is the best place to start. Banks are the number one source of home equity loans simply because of the reputation and security they carry.
Also, with any credit agreement there will always be a lot of small print and no matter how much you may feel pressured to act, read through a contract agreement. So before you put pen to paper, do the reading as it may save you a lot of sleepless nights and headaches in the long run.
Why Are Home Equity Loans Popular?
In such a fierce climate, it’s little wonder that people are starting to feel the pinch. Prices on fuel, energy and other essential commodities are steadily being hiked up, with yet more inflation forecast over the next decade.
Canada is currently home to a burgeoning demand for housing, with the rest of the world’s property developers having wised up to the fact that there is a vast expanse of untapped land here that has long been fiercely protected by its indigenous population.
With the need for expansion though, borders are being grudgingly broken down and cities are continuing to push outwards into the wilds as business, economy and growth continue to explode. Canadians are now searching daily for home equity loans Canada on a daily basis as the population expansion and the resulting inflation continues.
Are Home Equity Loans a Good Idea?
Dave Ramsey says “I don’t recommend it unless it’s to avoid a bankruptcy. One reason is we’ve all experienced that real estate doesn’t always go up, and people get caught in these situations. There aren’t many people asking that question anymore because they don’t have the equity in their homes to take out that home equity line of credit.”
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What do you think of home equity loans?
Thanks for explaining that a home equity loan can be helpful when trying to avoid bankruptcy. I would think that it is important to consider all of your options and possibilities before making a final decision about a home equity loan. It also seems like speaking with a professional might be a good resource for advice about your specific situation.
I actually had no idea that equity loans were secured against the value of the equity in your home itself. My husband and I have been wanting to get a loan, but there are so many different types and we don’t know which one would work best for us. After reading this post, I would love to learn more about equity loans. Thanks for sharing!
I understand that home equity loans are very important and necessary when buying a new home. Because not many people have the money to buy a house up front, the only other way to do so is with a loan. Like you said, the best place to get a loan is from your bank because they have your spending history. They also allow you different plans to pay them off.