Home equity loans are a type of debt that allows homeowners to borrow against the equity of their house. Borrowing against one’s house may seem like a great idea, especially if you need money to cover some high expenses.
Just like with any loan, home equity loans should be considered with great care. That is why MaxCash has come up with some questions you should ask yourself before deciding to acquire this type of loan.
Question 1: Is this the Right Time to Borrow?
At any given time, the average person is carrying at least one kind of debt, be it a credit card or mortgage. But many people are carrying multiple debts at once, and those debts could be a heavy burden on their own. Taking on more debt could be troublesome for borrowers, so it’s best to consider one’s financial situation beforehand.
Before you consider borrowing against your home, take stock of the debt you already have. Will making one more loan payment a month be too hard on your wallet?
Question 2: How Much Equity Does My House Have?
Before you take out a home equity loan, it’s worth knowing how much equity your home actually has. Knowing your homes equity allows you to calculate how much you are able to borrow. To figure out how much equity you have, you need to subtract how much money you owe on your house from your homes appraised value.
Assume that your home is appraised at $250,000 and you still owe $100,000 on your mortgage. By doing some math, we can calculate that your home equity is $150,000. Take a look at the simple calculation below.
Appraised Value Mortgage Owed Home Equity
$250,000 – $100,000 = $150,000
Does this amount of money cover what you need? Know that if the loan amount is too much, you could always take out less than what a lender offers you.
Question 3: What’s the Difference Between a Home Equity Loan and a Home Equity Line of Credit?
- A fixed rate loan
- A line of credit (HELOC)
A home equity loan means a borrower receives money in one lump sum with a fixed interest rate. That loan is then repaid over a set period of time. Since the interest is fixed, this means that the monthly payments will stay the same throughout the life of the loan. Though the home equity loan must be paid back in full if the house is ever to be sold.
A HELOC on the other hand has a person draw from a line of credit multiple times. A borrower could take out as much credit as they need, pay back what they borrowed, then draw on the credit again. Though the amount of times they can draw on that credit will be determined by the lender.
Unlike a home equity loan, HELOCs have a variable interest rate. This means that monthly payments could change throughout the life of the loan. However, some lenders have been known to change the variable rate to a fixed rate during the repayment period.
Question 4: What Information Do I Need to Submit to Apply for a Home Equity Loan?
The inquiry process will vary from lender to lender, but the following is some information you may need to submit.
- Driver’s license or state ID
- Copy of your mortgage (if you have one)
- Proof of homeowner’s insurance
- Proof of income (W2 or paystubs)
- Estimate of home value (by an appraiser)
Question 5: How Long Does It Take to Get Funds?
One question that we hear all the time is “How long do I have to wait to receive my loan funds?” Well there is no direct answer to that question, as the time it takes to submit an inquiry and close, will vary from person to person.
With MaxCash though, you may be able to speed the process up. MaxCash could have you hooked up with a reputable lender and finished with the process in as little as one business day.
Question 6: How Long Will It Take to Pay Off the Debt?
The shortest loan term for an equity loan is 5 years. But equity loans could get as high as $50,000 or more, which is a lot to repay in 5 years. That is why if you can pay back what you owe within that short time frame, it may be worth taking out a HELOC, depending on your financial situation.
However, if you feel it would take you longer to repay the loan, then a fixed equity loan could be the safest bet. By going with a fixed rate loan, you could have a loan term as long as 15 years. This gives you plenty of time to repay the loan in a manner that benefits your life.
MaxCash offers more than just insight into the world of finance, as we can also help people procure loans using our vast network of reputable lenders. Though know that we don’t just match people with any old lender, we take our time to find the most compatible lender and loan deal for someone’s unique financial situation.
If you would like to know more about the MaxCash process and the details of how we operate, check out our website. You can even give us a call any day of the week at (833) 207-9052 or send an email to Info@MaxCash.com.