Taking a Loan Against Your Equity in Your Home


by Jeff Livingston - Date: 2010-10-06 - Word Count: 500 Share This!

A great thing about owning a home is that you can convert the equity built in your home into cash. The cash can be used for emergencies, home improvements, college fees, debt consolidation or any other purpose. The monthly interest payments on your home loan are also tax deductible. Many homeowners are therefore taking out home equity loans, home equity line of credit (HELOC) and second mortgages to fund important purchases or investments. There are several banks and other financial institutions that offer such loans to homeowners. As far as the choice of lenders is concerned, you will find plenty in your own city. But keep a few things in mind about such loans before approaching a lender.

You should know exactly how much equity you have in your home. This number is the difference between the value of your house and the money owed on your first mortgage. For instance, a home valued at $300,000 with a $125,000 mortgage has $175,000 in equity. You should ensure that there is sufficient home equity that you can borrow against. Generally, lenders allow you to borrow amounts that keep your total debt (first mortgage and home equity loan) between seventy and ninety percent of your home's value.

Keep in mind that you have two loan options to use the equity in your home - a home equity loan (HEL) and a home equity line of credit. With the former, you loan a lump sum amount that is paid off within a specified time. You will have to make fixed monthly payments over the loan term. The latter allows you to access the cash, with a pre-determined limit, anytime you want. For a big, one-off purchase or investment such as a home remodeling or car purchase, home equity loans are ideal. HELOC is suitable for ongoing financial needs such as medical bills or college tuition fees.

Before you take out a loan against your equity in your home, carefully assess the interest rates and all the costs involved. Fixed interest rates may be more suitable in the current scenario where the rates are near all time lows. You can approach your existing lender, search for lenders online, or hire the services of a mortgage broker to look for the right lender. The broker will have a lot of experience and have good knowledge of the market. He can easily put you in touch with suitable lenders.

Typically, it takes two weeks to complete a home equity line of credit approval process. Some lenders promise quick loans where you can access cash in a few days, but such loans often come with higher interest rates. So don't be impatient even if the need for money is urgent, or you will have to end up making bigger monthly payments.

Before signing up for a home equity line of credit, remember that you will have to pay towards closing costs, appraisal fees and several other charges, though this sum will be less than what you paid as costs on your first mortgage.


For more information on home equity loans or equity loan Canada, contact Canadian Mortgages Inc.n
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