Home Equity Loans in Portage MI is money borrowed by a homeowner, swapping his or her home as collateral with a bank or financial institution. These home loans are borrowed to serve for several purposes. The advantages and disadvantages of opting for such a loan are discussed in the following article.
Businesses use borrowed money to expand their business. Parents can opt for these loans to finance their child’s education. Compared to credit cards, home equity loans come with a lower interest rate.
What is a home equity loan?
The value of a property’s “equity” is calculated by deducting the unpaid balance of the property from the actual market value of said home. The actual market value of a property can be calculated through detailed research of the real estate market. Home Equity Loans in Portage MI are also referred to as second mortgages.
However, there is a difference between them and mortgage loans. The latter does not have a fixed credit limit, and interest rates are variable. On the other hand, home equity loans have a credit limit and provide a lump sum at a fixed interest rate.
There are many things that banks/financial institutions consider before sanctioning these loans. The credit history of the loan applicant is studied carefully. The loan application can get rejected if it finds that the applicant has not met determined criteria.
Advantages
Banks prefer to give loans by taking the customer’s property as collateral. The reason for this is the assurance that, if the borrower defaults on the payments, the bank can recover its money by auctioning off the property. The process of applying for these loans is simple and inexpensive.
These loans can be used for debt consolidation, covering medical treatment costs, and emergency situations.
Disadvantages
There are certain disadvantages of opting for these loans. The greatest disadvantage to the borrower may be the permanent loss of ownership of his or her property if they fail to pay back the loan. As the duration of the loan is long, the homeowner can face serious problems if the market value of his or her home starts to decline.
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