What You Need to Know about Home Equity Loans

As it happens, at one point or another, most people run into the need for a significant amount of money to fund an important purchase. Home equity loans, or loans secured by the value in a borrower’s home, can provide the necessary funding for renovations, repairs, financing someone’s education, the purchase of a second home, debt consolidation or almost any other important (and expensive!) project.

This type of loan can take the form of a line of credit (a maximum amount of money borrowed against the value in a home, released against several or many smaller purchases) or the deposit of a lump sum (generally used to finance larger projects) and are of great benefit to both the borrower and the lender.  The borrower obtains funding necessary for his/her requirement while the lender has a secure loan guaranteed by the value in the home used as collateral.  The risk is in the hands of the borrower.  Failure to meet the borrower’s defined repayment schedule can mean foreclosure on the home used as collateral.

In general, and depending on the lender, this type of loan is easier to qualify for because the borrower’s property is used as collateral. Larger sums of money are made available pending borrower qualification (credit worthiness, the ability to repay etc.) and the amount of equity in the home itself. Borrowing costs can also be positively impacted by a somewhat lower interest rate.

Careful consideration needs to be used in sourcing a lender for a home equity loan.  Very often where traditional banks and lending institutions are unable or unwilling to make this type of investment, private lenders can accommodate. This is because private lenders prioritize the collateral in the case of a home equity loan as opposed to personal credit standing and current financial status of the borrower.

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