What are home equity loans?

Surely you have heard about mortgage loans , those that offer the applicant financing to buy a home. But this type of credit is often confused with mortgage- backed credit, a modality in which you already have to own a property to be able to offer it as a guarantee of payment. But specifically, what are home equity loans?

 

What are home equity loans?

home equity loans

Home equity loans are personal or consumer loans in which a person requesting financing guarantees a property that he owns and owns. That is, the mortgage guarantee is the right granted by the applicant to the bank to appropriate the property in case of not paying the debt.

It should be noted that not all consumer loans are mortgaged loans , but only those that merit this type of guarantee for approval. In this way, the client makes available to the bank its own property in order to increase the probability of approval of the credit in case the bank considers the applicant to be risky, or to access a higher sum of money than with a normal consumer credit.

A fact that few know about the loans with mortgage guarantee is that they can be requested even by people who are reported in a central of risk for delinquency, since the credit has a strong enough guarantee so that the bank does not lose if the client You do not pay, you can even earn more since the value of the property can increase.

Being consumer loans, the financing obtained by a loan with mortgage guarantee can be used by the client to pay for any project or buy any good, without having to inform the bank for what it will use.

It is important to highlight the difference between mortgage credit and mortgage guarantee credit. While for the mortgage loan, the applicant does not necessarily have to have a home or property since that is why he is requesting the financing, to apply for a loan with mortgage guarantee it is necessary that the client owns a property that can put as a guarantee for the bank.

 

Loans with mortgage guarantee – Advantages

Loans with mortgage guarantee - Advantages

Some of the advantages of applying for a home equity loan are the following:

  • It offers customers who are unlikely to be approved by the bank the possibility of accessing a consumer credit by endorsing a property owned by them, an act that for the bank eliminates the risk of non-payment of the credit.
  • It allows the applicant to increase the amount of credit money to the extent of the value of their mortgage guarantee.
  • If you are still paying your home with a mortgage loan, you can put it as a guarantee of a personal loan provided you have paid at least 80%.
  • The client can continue to live or use the property placed under guarantee as normal.
  • The terms of these loans are usually longer, similar to those of a mortgage loan.

 

Loans with mortgage guarantee – Advantages

Loans with mortgage guarantee - Advantages

On the other hand, some disadvantages of home equity loans are:

  • Interest is usually higher than a normal consumer credit.
  • The client may end up selling the house due to the impossibility of paying more than just interest and not being able to repay the loan money.
  • The risk of losing the property in the absence of payment compliance.

In conclusion, home equity loans are an option for those who do not fully meet the requirements to be a credit subject, since they offer the bank a solid guarantee and that gains value over time. In addition, it allows the applicant to access a greater sum of money, although at higher interest rates. Therefore, before putting a property under warranty, think very well about the advantages and disadvantages of doing so in order to avoid mistakes.