If you want to buy a second or a third home on loan, or want money to invest in shares or want to renovate your home, you can take advantage of home equity loans. Your application will get approved provided you have no encumbrance on your existing property and your home equity is more than 20%.

What a home equity loan means

The loans which allow you to borrow money, keeping your existing home as collateral are called home equity loans. It is like a second mortgage. You can take this loan to buy another property or to renovate your home. You can also take this loan to consolidate your high-interest rate bills or to pay for your child’s college education. It is difference between the value of your home and the money you owe. Say, you owe $120,000 and your home value is $750,000, so, your home equity will amount to $630,000. You can get a loan amount of $630,000.
In this type of loan, the loan outstanding amount will reduce each month by the amount of cash coming in. But, the balance will increase if you pay your credit bills with this cash or withdraw cash. However, as you need to pay the minimum interest-only amount per month, your interest may add upto a large lump sum over the loan term.

Advantages of home equity loans

The advantages of a home equity loan are:

• You can get relatively large amount of loan

• The payments you will make towards repayment are tax deductible

• It has flexible features, like, you can pay the interest only each month and if you want, you can pay towards the principal also by paying extra in addition to the minimum repayment amount.

• The interest rates in this loan is lower than personal or credit card loans

• The interest rates or APRs are lower

• It will take less time to process the loan application

• It has redraw facility, so, if you need extra fund, you can have access to it

If you pay wages into your account each month, the interest will decrease
As you are making extra payments, in addition to your fixed repayment amount each month, your loan term will shorten

Prior to applying for home equity loans, you should shop around and compare the quotes offered by different brokers, banks and credit unions. You should have a good credit score and get references from your friends, family and neighbors for reliable and authentic lenders, to make sure that the deal you get will work out in your best interest.