Before applying for a personal loan to pay for home repairs, wedding
expenses, or college tuition, carefully weigh the advantages and
disadvantages of a home equity loan. Home equity loans provide a lump sum of
quick cash for large purchases. Moreover, because your property secures
the loan, most second mortgage applications are approved.
Home equity loans are beneficial because they generally have a lower
interest rate. Using a credit card for home repairs, emergencies, etc is
very costly. Because of high finance charges, paying the balance on
credit cards is almost impossible. On the other hand, a home equity loan
has a low fixed rate, which allows you to pay off the balance within a
Furthermore, home equity loans are available for individuals with poor
credit. Most bank loans and credit card companies will not loan money
or grant credit to individuals with a low credit score. In some cases,
it is possible to obtain a loan with adequate collateral or a co-signer.
If a bad credit applicant does not secure the loan with a piece of
property or have a co-debtor, lenders will not approve the application.
While low rate home equity loans have several advantages, there is one
major pitfall of getting a second mortgage. The loan approval is based
on your home’s equity. Hence, you take out a second loan against your
home. If you are unable to repay the home equity loan, the lender will
foreclose on your house. This is true even if you continue to pay your
first mortgage. Because the home has two liens, either lender has the
right to foreclose.
Getting the best deal on a home equity loan requires work. To begin,
shop around for quotes from a mixture of lenders. These may include
banks, mortgage companies, brokers, credit unions, etc. Mortgage brokers
are extremely helpful. Moreover, contact your present mortgage lender for
a quote. Before applying for a second mortgage, review your credit.
Resolve credit errors, and improve credit blemishes. This will help you
get the best rate.