When you find yourself strapped for cash, the first thing many people think about is a home equity secured loan. Although this may sometimes be the quickest way to obtain needed cash, one should be very cautious when using your home to secure a loan. Always use the equity in your home after all other attempts at securing the funds you need have failed.
Do you qualify?
Depending on your credit and the amount of the loan, you may qualify for an unsecured loan. Many lending institutions will make unsecured loans to borrowers who have extraordinary credit; however, this is based on the amount of the loan. If you are looking for a loan under £5,000 and have excellent credit, you may qualify for a loan on just your signature.
Using stocks and securities as collateral
If your bank is also the holder of your securities portfolio, the lender may be willing to accept them as collateral for a loan. This will, of course, depend on the amount of your portfolio, and how volatile the market is at the time of the loan. Some securities are more stable than others are and substantiate a higher approval rate than securities in less stable markets.
Savings account loan
If you have a substantial savings account or a retirement account that allows for loan withdrawals, this is another option to consider before a home equity secured loan. Not only is the interest rate lower on these type loans, but you actually pay the interest to yourself since you have borrowed against your own money. Not only lenders or retirement administrators offer these type loans, but if you are able to do so, consider these options before you consider a home equity secured loan.
When you have to have a secured loan
When the amount of substantial or your credit does not qualify you for an unsecured loan, a home equity secured loan is your only remaining option. Tread carefully when taking advantage of this type of loan and remember that you are putting your home on the line with these type loans. You don’t want to be frivolous and buy things for which you have no use, but rather use a home equity secured loan for things that are necessary for the well-being of your family or the upkeep of your home.
Some of the reasons you might want to use a home equity secured loan include:
Major repairs and maintenance
Renovations
Home improvements
Catastrophic medical or personal expenses
Educational expenses for your family (you, spouse, children)
Bill consolidation to preserve credit
Other purposes may include reverse mortgages for those approaching retirement, however, these loans are not paid back monthly, but rather at the death of the borrower or upon the sale of the house.
The important thing to remember, though, with a home equity secured loan is with the exception of the reverse mortgage, you must treat it with as much caution as your primary mortgage because you can lose your home if you miss payments on your home equity loan just as quickly as you can with your primary mortgage.
By: Bill Stone
Posts Tagged Lending Institutions
The ever increasing cost of living, higher prices on all of our necessities such as food and gas, is making it difficult for many people to keep their head above water financially. Everyone is trying to make necessary adjustments and adjusting their spending habits but sometimes it is just not enough. You still come up short. Debt consolidation has become the solution for many, and some homeowners have decided to take advantage of the equity in their home and obtain a home equity loan to consolidate their debt. All loans have their risks and benefits. A home equity loan is not the exception, but also carries a unique risk.
It is true that by consolidating with a home equity loan you can save a lot of money each month. Rather than having several payments you are reduced to one payment a month and generally at a much lower interest rate. Lending institutions flood people with propaganda advertising these advantages as the solution to all your financial problems.
One thing that the lenders fail to emphasize in their advertisements is that these home equity loans are secured by your house so by taking these loans you are putting your home on the line.
That means that you could be taking debt that at present is not secured by any assets, such as credit card debts or medical bills, and tying them into your home. Since this puts your home at risk this is a very serious decision that should be considered carefully.
A wise consumer considers things beyond what the lending institutions tell them. It is to your benefit to think about what could happen. For example, let’s consider what could happen if you are able to only pay off a portion of your debt with a home equity loan.
With credit card bills, medical bills, or other expenses, it can be difficult to pay and may have a higher interest rate. If you default on the payments it can have a negative affect on your credit. However, it does not put you at risk of loosing your home.
A home equity loan does not eliminate debt. It still has to be paid, just in a different form. There could still be months when your budget is tight and it could be difficult to make those payments. Now your home is at risk.
Consolidating your debt with a home equity loan can be very helpful. However, since a home equity loan involves putting a valuable asset, your home, at risk it should be considered very carefully.
By: W. M. Blake