Resolve Your Debt Crisis By Borrowing Against The Equity In Your Home

Posted by Prosper Home Loan on August 11th, 2018

Whether aged or young, extra money to deal with an emergency situation or improvising the house or having a regular source of monthly income is all facilitated by a loan. Two common ways of getting capital against your home from the market are – lifetime mortgages for over 65 years and borrowing against the equity in your home.

Borrowing against the equity in your home basically means taking loan from a bank or a financial institution against your home. A home equity loan is taking a second mortgage – a lump sum amount is received at a fixed rate of interest with a fixed term. You simply need to keep paying the monthly instalments for the agreed period of time.

The cons of this scheme – you can lose the house if you are unable to repay the loan on time. You cannot rent the house and if you use the fund or the loan amount to buy something that depreciates over a period of time, you have made a bad deal. Borrowing against the equity in your home means you are taking loan against the entire value of the house whereas your requirement may be much lesser.  The pros are also there – since the interest rate is fixed you are not liable to pay hike in interest rates with passage of time. This is good way of consolidating all your other debts into one single entity. Since interest rates on credit cards are much higher than mortgage rates, even if it is a second mortgage, you still stand to gain. 

Lifetime mortgage for people over 65 years is ideal for retired persons who have limited or no source of income. They can put up their entire house on loan that will last them through their remaining years of survival. There are number of credible financial institutions in the market that offer attractive and reasonable rates of interest to elderly people against lifetime mortgage. The good part about the loan is that the interest is allowed to accumulate and at the end when the property is sold the total value – sum of principal and interest - is paid off to the lender. The property is sold either when the borrower dies or when the borrower sells off the house to shift to an old–age home or to a smaller property. The borrower can either take the lump sum amount at one go or keep withdrawing when he wants to. He can also choose a convenient method of repaying back the interest – either let it accumulate and pay at the end or keep paying the interest on a monthly basis.

Both the types of loan involve putting your house at stake. Hence it needs practical and pragmatic approach – speak to a registered financial expert before committing to either of these.