Are you considering making some expensive improvements to your home? Are you searching for options on how to pay for your child’s college tuition? If so, you may want to look into applying for a home equity loan. With home-equity financing, you can use up to 85% of the equity in your home as collateral for a loan or line of credit. Equity is the difference between your home’s value and the amount of money you still owe on your mortgage. In many cases, home-equity loans are only available to borrowers with good credit histories.
Home-equity financing can either be set up as an “open-end” line of credit in which funds can be withdrawn overtime as needed, or as a “closed-end,” lump-sum loan from a bank, credit union, or mortgage company. Both of these types of loans typically have terms ranging from five to fifteen years and must be repaid in full in the event that the home that is borrowed against is sold. Fixed-rate, closed-end loans are typically used to cover one massive expense such as purchasing a new roof for a home, while credit lines make more sense as a means of paying for short-term, recurring costs such as tuition payments.
These types of loans often have a fixed monthly payment structure for an agreed-upon amount of time. Just like a mortgage, if you do not repay your home-equity loan according to the terms of your agreement, the lender can foreclose on your home. In order to reap the benefits of a home equity loan and protect yourself against foreclosure, it is best to only consider home-equity financing if you have a steady income and are confident in your ability to adhere to a loan’s repayment plan.
Using your home’s equity to back an advance on funds can be an easy and relatively quick way to gain access to a source of cash. While the interest rates on home-equity loans are often greater than those of a person’s mortgage, it is often lower in comparison to those of most other forms of loans and credit cards. Due to these lower rates, many borrowers turn to home-equity loans as a means of paying off credit card balances. Any interest a borrower pays on a home equity loan is tax-deductible.
Home-equity loans are beneficial for lenders in that they are secured loans and allow lenders to collect interest and fees on top of borrower’s initial mortgage. Lenders assume very little risk, as they can claim their borrower’s property if they should default. After foreclosure, the lender can always resell the home and restart the lending cycle with a new buyer.
If you have defaulted on a home-equity loan, a knowledgeable Fort Worth bankruptcy lawyer from The Pritchard Law Firm can protect your interests and guide you towards a financially secure future. Having represented countless debtors and consumer lenders since 1989, we know your rights and we know how to get the results you need.