Why Home Equity Loans For Bad Credit Is the Ideal Debt Clearance Solution

Every loan applicant would love to secure a large loan to clear all their financial headache in one go. The problem is in finding the collateral needed to secure the deal. But homeowners have easy access to ample security to secure home equity loans, for bad credit borrowers to solve their financial problems.

The fact that home equity is the share of home value that is independent of the mortgage means that it is a ready source of security. What is more, it is usually sufficient to secure loans of $75,000 and more, and is highly prized by lenders. And because of its popularity, applicants can enjoy low interest loans too.

These home equity loans are considered perfect for bad credit financing, satisfying the demands of both lenders and borrowers. But there are some factors that need to be considered before applying for one.

Equity And How It Works

There is little mystery over the worth of a home equity loan for bad credit borrowers, with the chance to secure a very large loan a rarity without home equity as security. The fact that a segment of property value can be convert into cash when needed, rather than when possible, means that mounting debts can be cleared at almost any time.

For those unsure, equity is to the value of a property that is not covered by the mortgage, and is, therefore, owned by the mortgage holder. The equity on a home is increased every time a mortgage payment is made each month. Each payment effectively buys another share of the house value by lowering the mortgage balance and the amount owed to the lenders.

But since a share is owned by the borrower, it can be used as security in any loan deal. And with the risk factor lessened dramatically, low interest loans become attainable. So, borrowers can afford to seek very large home equity loans as long as the equity is sufficient and the repayments are low enough.

Why Equity Is So Popular

Equity is arguably the favorite form of security amongst lenders for a number of reasons, but chiefly because of its long-term stability. Equity does not depreciate over time, as items of collateral can do, so a home equity loan, for bad credit borrowers especially, is the most influential security option around.

In fact, equity is extremely reliable, with it growing every time a mortgage repayment is made and the market value increases. After 10 years, for example, the equity on a $200,000 home could increase from $20,000 (10% down payment) to $90,000 (plus 120 repayments). If the property value increased by 25% over the same period, a further $50,000 can be added, making a total of $140,000.

But they practically ensure that low interest loans are secured because the value of the equity can never depreciate. While a car may lose as much as 50% of its value over 3 years, a $75,000 home equity loan will always have security worth $75,000.

Why Low Credit Scores Are No Problem

There is no doubt there are real benefits in a home equity loan for bad credit borrowers. But it would be a mistake to think that low credit ratings are completely ignored. It is not incorrect to view these loans are potentially low interest loans, but lenders will still adjust interest rates upwards when credit scores are very low.

However, it is also true that these higher rates are significantly lower than would normally be charged by traditional lenders. After all, the power of home equity is that lenders face significantly less risk than normal. With this in mind, a home equity loan is the most affordable loan option out there for bad credit borrowers.

Facts About Debt Consolidation Home Equity Loans

What exactly is a debt consolidation home equity loan? This is kind of a hybrid between two types of loans, both the age old debt consolidation loan and the all famous home equity loan. If you are considering consolidating your credit card, auto loan, and other unsecured debt into one lower payment then all of them combined, this may be the loan for you.

First, I would like to discuss the loan that we are talking about. A debt consolidation loan, by itself, works like this. Let’s say you have 8 bills for credit cards, an auto loan, and 2 small signature loans at a small lending institution. The total balance is $14,500 in debt. Your current payment is $426 every month. A debt consolidation loan will roll all these loans into one and stretch out the length of payment to 5 years. At current rates the new payment will be $246 per month.

Second, we will discuss the home equity loan. Just as it sounds, this is a loan against the equity in your home. If you have sufficient equity in your home, this kind of a loan can be easy to get as the creditor will use the home as collateral for the loan. If you owe $145,000 on your home and the value is appraised at $235,000, there is $90,000 in equity.

However most equity loans are only allowable on up to 70% of the value. Using the same figures, this makes the value of your home as far as the bank is concerned for the loan, $165,000. So you would be able to get a loan of $20,000. This loan would be for a term of 5 to 20 years and could considerably reduce your monthly outlay. The same $14,500 borrowed on a ten year debt consolidation home equity loan, would have repayments of $152 each month.

With debt consolidation you will pay less but usually for a longer period of time. If you are in desperate need of lower payments in order to survive, this can be a good deal and save your credit rating.

One of the pitfalls of the debt consolidation loan is credit qualification problems. If you have already been experiencing a hardship before you finally applied for the loan, this can cause you to pay a much higher interest rate. In some cases, you may not be able to qualify for the loan at all. The trick is to apply for the loan if you see the trouble coming, not after you have been in the middle of personal financial hardship for months.

A debt consolidation loan can be a good thing and save you much hardship and heartache. However, you must be aware that the debt consolidation loan that is using your home equity as collateral can continue to take a big chunk out of the equity for a long time. If home values fall, you could be in debt for more than your home is worth.

Just use good judgment and think wisely before using your home equity to consolidate debt. Always seek the advise of a financial professional to help you make a wise lending decision.

Home Equity Loans Give Financial Acuity

Suppose you have obtained a first mortgage worth ₤150,000 on your property. You have paid ₤70,000 in last 5 years. Your home value has also increased to ₤300,000 in these 5 years. So your home equity is ₤1, 50,000 (₤300,000 – ₤70,000). Now if you take a home loan worth ₤2, 30,000 keeping the home equity as security for the debt, then such loans are called home equity loans.

Equity is the difference between how much the home is worth and how much you owe on the mortgage if you have more than one on the property. Home equity loans are second mortgages that let you turn equity into cash, allowing you to spend it on home renovation and improvements, business extension, availing children higher education, debt consolidation, or other expenses.

There are many benefits of home equity loans. Followings are some:

oLow interest rate home equity loan

oBorrow up to 125% of your home value (amount ranges ₤3, 000-₤75, 000)

oFlexible repayment term (term of 5to 25 years)

oMake any use of the loan amount

oFree online advice for home equity loans

oLower interest rates

Home equity loans are quite useful, and have several advantages over other types of loans, such as credit card loans or more traditional secured loans. The biggest advantage is that the interest on home equity loans is tax deductible. The interest rates on home equity loans are already pretty competitive, but the addition of the tax deduction makes them pretty hard to beat.

Home equity loan is risk less loans. The lenders use the borrower’s home as collateral security. Home equity loans allow users to access funds depending upon the borrower’s requirements in varying amounts up to their credit limit.

For this cause, there are innumerable lenders present online. With the respective terms and conditions, these lenders are going in for alluring borrowers one way other. Availability of home equity loans online has made availing rather time-saving and instant at processing.