subject: Home Equity Loan - What It Is and the Advantages [print this page] Home Equity Loan - What It Is and the Advantages
A home equity loan is a good way to make use of your investment in your home. For those who own house or property but lack the finances to meet large unexpected expenses, this loan is just the thing. A home equity loan Toronto can give you access to a large amount of funds quickly to meet medical expenses or the cost of higher education.
A Secured Loan
Your home equity loan Toronto is a secured loan that uses your house as the collateral. If you have a mortgage on your home, then the paid up equity that you have in the property becomes the basis for the loan amount you can qualify for. You may be able to take a loan of up to 85% of your paid up equity. Considering that a home is a huge investment, this 85% makes a great deal of money available to you. But since the loan puts your home at risk, it is necessary to make sure you do not default on the repayments. Given the risk, it is advisable to opt for home equity loans only when you need funds to meet unavoidable and really worthwhile expenses.
Advantages of a HEL
A HEL is a popular method of raising funds to meet critical expenses because of the many advantages its offers:
It is generally cheaper than non secured loans because the house property is being used as collateral. The lender of your has a secondary lien over your house in case you fail to fulfill your obligations. This fact allows him to give you better interest rates than if you had no collateral to offer. Since any loan puts a significant financial burden on you, a loan that requires lower monthly payments is definitely preferable.
For those with poor credit scoring a HEL may be more easily available than other non collateral loans. For other loans, your low credit score shows lenders that you are a poor credit risk. They may be unwilling to lend money to a high risk customer. But with your home as collateral to mitigate the risk the same lenders may be willing to give you an equity loan.
This kind of loan lets you use the substantial investment you have made in your home. The major portion of your savings is locked up when you invest in purchasing a home. An equity loan lets you draw on this investment so that you optimally utilize the asset.
Remember that every time you make a payment towards the home's mortgage, you are increasing your paid up equity in the property. This, in turn, increases the total loan amount that you can get through the loan.
Your credit score also has a very crucial role to play in determining how attractive the terms of your home loan are. A good credit score translates into lower interest rates whereas a poor score means that your loan is much more expensive. Taking steps to improve your credit score before you apply for a home equity loan is a good way to reduce your total loan cost.
