Applying for a home equity loan is getting more attention these days as more people need access to the value they’ve built up in their home equity. As a type of second mortgage, a home equity loan helps people get a lump sum of cash that they can use to achieve their financial goals, may it be debt consolidation, home renovation, more investments, or higher education.
The Good About a Home Equity Loan
A home equity loan comes with pros and cons same as with other types of loans. It can be a relatively easy way to access a substantial amount of money as the home equity is used as collateral. It can be tempting to apply for one as any interest can possibly be claimed as a tax deduction, not to mention that it already enjoys a lower interest rate compared to other loans because it is a secured loan.
The Bad About a Home Equity Loan
Because a home equity loan is secured by the home equity, there is a risk of losing the home if the debt is not paid in time. It is also secondary only to a primary loan in the event of foreclosure to there are additional costs upon approval other than the closing fee.
Should You Get a HELOC or a Home Equity Loan?
Most people are confused regarding the difference between a HELOC and a home equity loan. They do sound alike; however, they differ in how the funds are made accessible to the homeowner. With a HELOC, the borrowing homeowner is given a line of credit whereas with a home equity loan, the loan is given as a lump sum of cash. Repayments come later for a HELOC while with a home equity loan, there will be fixed monthly payments until the loan is fully paid off. What is best for you depends on how much cash you need, your cash flow, and your ability to repay together with other factors. Your mortgage professional will delve into this further with you before finalizing your application for approval.
How to Get a Home Equity Loan
To get the best terms, you should consider inquiring from several lenders to compare interest rates, costs, possible loan estimates, and more. If you can, work with a mortgage professional to make this process easier for you. Once you send in an application, the lender will check your credit and ask you for an appraisal to properly gauge the value of your property. The entire process can take a few days to a few weeks depending on each lender’s requirements.
Poor credit is usually not a detrimental factor for you to get approved. What matters the most is your home equity. Based on this and other factors, the lenders will compute what loan amount they are comfortable lending to you. Note that things may be a little different from HELOCs but basically, you will be asked to submit nearly the same requirements.
Find a Good Lender
The best home equity loan lender for you is the lender that can save you the most money in the long run. You will have to look into fee structures, the advantages and disadvantages of loan programs available, and how they take their time to make sure that you understand the options you have. At Mortgage Central Canada, we will assist you in shopping for the ‘best-fit lender’ for your needs. Contact us today!