A home equity loan is a useful way of obtaining a lump sum amount of cash for many different needs. As you continue to pay down your mortgage, your share of home equity will also increase. Many lenders allow you to access this option if you've accumulated a certain amount of equity over time. Homeowners have used home equity loans to pay down credit card debt, finance their children's college expenses, carry out home repairs and much more.
However, you should be aware of what home equity loans truly entail. This is not just free money, as you're essentially trading your share of ownership in the home for a cash advance. Without proper planning, you may end up giving away ownership of your property after paying your mortgage for many years.
Here are some important factors to consider before going down this road.
What happens if you default?
When you take out a home equity loan, your mortgage will be essentially restructured according to the amount borrowed. You may end up with a new interest rate and most likely a longer repayment period (or a higher monthly premium). Therefore, be prepared to meet the obligations of your new loan terms.
If you default on your mortgage, the lender may repossess the home because you don't have as much equity as you had previously. Avoid this risk by keeping cash reserves, improving your credit and controlling your spending.
What happens if you decide to move?
After taking out a home equity loan, you will also have limited options should you decide to move. The most convenient option available is to transfer the mortgage to a new property. However, you'll need to notify the lender so they can restructure your mortgage for the new home you're considering (the lender may also deny your mortgage transfer request).
Having people live in the home
Some mortgage lenders may restrict who can move in to the property while it's still under a mortgage. You should find out whether you could live with other parties in your home, and what the procedure should involve. You may first need to obtain written permission before making such arrangements.
Your tax bill may also change after taking out a home equity loan. In particular, you may not be eligible for some of the tax deductions that property owners enjoy. However, you may be able to claim deductions for mortgage interest and other associated expenses.
For more information about home equity loans, reach out to a mortgage broker near you.Share
2 May 2019
I recently got divorced, and not only did I lose my wife, but I also lost most of the possessions I'd accumulated over the last 3 decades. I needed to take out a personal loan just to buy a new bed because I walked out with nothing but my self respect. It's not easy to start with nothing, but I earn a decent wage and I'll be able to build it all back as long as I am smart about how I structure the loans and financing of my new life. This blog is all about taking out loans to fund a divorce and new, post-divorce life.