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What are home equity loans

Home equity loans are usually taken out by people who need to borrow a sizable amount of cash, which normally eclipses the amount a person can borrow with an unsecured personal loan. The money is usually for major home repairs or to enable the person to consolidate a number of debts in to one manageable monthly payment. In order for a person to successfully apply for this type of loan, their credit history is usually required to be above average. While a poor credit history may not necessarily be refused, the person is unlikely to be able to borrow the full amount they need.

Home equity loans are also known as a remortgage or a second mortgage. This is because, just like the mortgage, the loan is secured on the person's home. This means that if the person does not keep up the repayments on the loan, they could risk having their home repossessed. This is exactly like the terms of the mortgage.

Unlike your average unsecured loans, home equity loans take time to arrange and can cost the borrower money. This is because before a loan is given, the loan company carry out the same checks as a mortgage lender would. This involves having the property valued, to determine how much equity is in the home. Having the home surveyed, to ensure the house is structurally sound and not in need of any urgent major repairs, or worse, demolition. Legal fees are also required as a solicitor will close the loan deal for the borrower, although many of the companies who arrange these loans will pay the legal fees for the borrower.

Before choosing from the many home equity loans on offer it is advisable for a person to seek advice from a financial advisor. They will be able to explain the advantages of this type of loan as well as help them work out how much equity you have in your home. If possible you shouldn't borrow the full amount of equity in your home, this will give you something to fall back on if you have financial problems in the future.

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