Home Equity is the value of the property that you own. Put more simply, your home equity is the difference between the market value of your home and the outstanding balance on your mortgage. A home equity loan allows you to borrow money against the value of your home.
There are several advantages associated with taking out a home equity loan. The most obvious of these is the fact that you can generate significant cash flow, depending on how much equity you have in your property. You can use this to fund a significant purchase such as a boat or a car, pay for home improvements or an event like a wedding.
A home equity loan also offers the additional advantage of offering interest rates which are lower than those which can be found for a standard personal loan. This is because it is secured by your home. The duration of a home equity loan is also likely to be longer than that of a personal loan, making your monthly repayments even more manageable.
On the downside, you do need to keep in mind that a home equity loan is secured by your property. This means that if, for some reason, you are no longer able to make your payments you run the risk of losing your home. Furthermore, when you take out a home equity loan, this inevitably reduces the equity you have in your home. Should the property market stagnate or decline, there is a possibility that the value of your home ends up being less that the total amount of your loans. This could then have an impact on your ability to sell the property.
When considering a home equity loan, it is important to note that these types of loans are designed primarily to cover significant expenses over the long term. If you need to cover more mundane expenses in the short term, other option might be more appropriate. Also, while the opportunity to access large amounts of money can be very tempting, make sure that you are comfortable with the additional monthly repayments you will have to make over a number of years.
A home equity loan can be a useful way to access cash for various purposes, but it also comes with some risks and costs. You should weigh the pros and cons carefully before deciding to apply for one. If you would like more information, visit the Home Equity Loan page on our website, where you will also find ways to contact us for additional advice from our home loans experts.
MeDirect Bank (Malta) plc, company registration number C34125, is licensed by the Malta Financial Services Authority as a Credit Institution under the Banking Act 1994. Applications are subject to the Bank’s lending criteria. Terms and conditions apply and are available on request.
