Types of Home Equity Loans > Bad Credit Equity Loan Falling behind on personal loan or credit card payments will have a negative impact on your credit rating. If your credit rating is low, it will be harder to have a home equity loan arranged for you. Fortunately, some loan providers will lend you money even if you have a bad credit rating since the equity loan is secured against your property. The amount of loan you will be offered in this situation is lower than what you would have been allowed if your credit rating was good. Some lenders will already have a pre-set limit to how much can be borrowed for bad credit equity loan, and in most cases the interest rate will be at least slightly higher. Since terms and conditions vary between lenders, even for bad credit equity loans, it’s still worth shopping around to check who can offer you the best possible deal. > Equity Loans Basic equity loans enable you to borrow money against the equity in your property. As a homeowner, the equity increases your chances of getting approval for your loan. The most you can borrow is usually equal to the value of your equity and you are free to spend the money you receive for any purpose. Since equity loans are secured against your property, you put your own home at risk should you fall back on your monthly repayments. > Equity Release Mortgages Equity release mortgages are designed specifically for older homeowners, who either do not have a current mortgage on their property, or who have smaller mortgages. These loans are usually only offered to homeowners between 55 and 60 years of age. The advantage of equity release mortgages is that there are no monthly repayments to make. The loan and any interest is repaid if the property is sold. In the event that the homeowner dies, the loan is often transferable to a different property. The best equity release loans to look for come with a guarantee that the property cannot be repossessed, as well as a negative equity guarantee that preserves the value of the home against downturns in the housing sector so that the family member who is responsible for the estate when the owner dies is not left with debt. > Home Equity Line of Credit Similar to standard home equity loans, home equity lines of credit are basically loans secured against the value of your property. However, while a home equity loan will usually be limited by the amount of equity you have, a line of credit lets you borrow up to 125% of your home’s actual current value. A good credit rating is required to qualify for this type equity loan, and the arranged interest rates are often variable. > Home Equity Loans Refinancing In order to have lower monthly repayments, many homeowners decide to refinance their mortgages. Switching lenders gives you a chance to arrange for a lower interest rate, which is results in lower monthly repayments, and it becomes easier to pay off the loan sooner. By paying off the loan more quickly, you increase the amount of equity you have in your property at a faster rate, giving you more to equity to work with if you decide on a home equity loan in the future. > Home Income Plans Home income plans are a type of equity release plan that provides a regular income for life and is designed for elderly homeowners. Basically this lets you take out a loan at a fixed interest rate against your home. The loan is placed into a type of annuity investment that pays the interest on the loan plus your income. The amount of released equity will depend upon your age. The loan provider will hold on to a share of your property which is returned to them in the event that the last owner dies. If the will names an inheritor, that person will have to pay back any outstanding balance to the lender before the property can become part of the estate. Historically, home income plans gained notoriety after many buyers were left in debt when the loans that were invested on their behalf suffered from the sudden rise in interest rates during the 1980’s and the stock market crash that followed. Home income plans are still offered today because they are able to generate a regular income for older people, but as with any other investment, care needs to be taken when choosing among the options available on the market. > Home Reversion Schemes A home reversion scheme involves releasing equity by selling your property, or part of it, to a finance company. The released equity is then used to buy an annuity that will generate a regular income for life. Different home reversion schemes are offered which give you the option between taking your equity as income, a lump sum, or a combination of both. The loan may be switched to another property if you want to move to another home. You reserve the right to live in your home until your death and that of your spouse. The finance company will give you only around 40 to 50% of your home’s actual value, but in return you will not have to worry about paying your mortgage anymore. The minimum value required for a property to qualify for a home reversion scheme is around £40,000. Also, payments are based on life expectancy and will be higher the older you are. If you are 70 years old or more, you can expect to receive the maximum benefit possible. > Homeowner Loans This is equivalent to a secured loan. Homeowner loans let you borrow money for any type of purpose you may have, and your property is put up as security. The amount available to you depend on your financial situation and range from £3,000 to £100,000. These type of loans are relatively inexpensive and easier to arrange. You can expect a lower rate of interest compared to other types of loans. Your credit rating will be taken into account when the lender decides how much you are able to borrow. . |
