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The pros and cons of home equity loans

If you’ve been a homeowner for a while, you may have heard about home equity loans but still have questions about them. Before fully committing to a home equity loan, it’s good financial practice to consider all aspects of this financial tool. Looking at the pros and cons of home equity loans can help you understand them even more and make an effective financial decision.    

Understanding home equity loans 

If you’ve been paying the mortgage for your house for several years, you’ve probably built equity in your home. You can calculate it yourself by subtracting your outstanding mortgage from the appraised value of your house. The more the property’s value you have paid, the bigger the loan you can get.  

Home equity loans are flexible financing options for homeowners because of how they can be used for business endeavours, major home renovation, and loan consolidation.  

A home equity loan is an excellent way to finance some of your goals. They bring many advantages to borrowers, but being a loan, borrowers should understand the responsibility of a home equity loan.

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Pros of home equity loans 

While being a substantial amount of money with fewer requirements, home equity loans bring borrowers several of the following benefits.  

  • Comparatively lower interest rates—if you have big goals like renovating your house, home equity loans are a good option because their interest rates are lower than credit cards. Likewise, they are suitable for consolidation because paying for interest to separate financial obligations can quickly add up.  
  • Fixed monthly payments—after discussing with a home equity loan lender, you’ll determine how much you’ll pay each month, making it easy to incorporate into your budgeting plans.  
  • More flexible eligibility criteria—getting traditional loans requires extensive background checks, including having a strong credit score and steady income. Some home equity loan lenders won’t need that and will only focus on the amount of equity you have.  
  • Potential interest deduction—your home equity loan may be tax deductible if you use it for specific home improvements, like increasing accessibility. 

Cons of home equity loans 

Additionally, be mindful of some other aspects of home equity loans. Home equity loans are meant to help you.  

  • Require more financial responsibility—while home equity loans can be used for good purposes, they are still another loan. Ensure that your current financial situation can genuinely benefit from getting a loan.  
  • Property is collateral— securing a loan with an asset assures the lenders. By providing collateral, the expectations of getting approved for a loan are attainable.  
  • Need sufficient equity—lenders will set different minimums of available equity in your property, from 20%-30%. Alpine Credits only requires you to own at least 25% to be eligible for a home equity loan.  
  • Other extra costs—like any loan, home equity loans have fees due at the start of the deal. Be sure to consider the extra expense as you’re applying for the loan.

Purposes for home equity loans 

While borrowing a home equity loan takes considerable deliberation, it opens many opportunities that would be challenging to access on your own. Some of the most common reasons for a home equity loan are below.  

  • Home renovation—you can fund the changes in your property with the value stored in your home. Not only does it elevate the comfort of the home, but it also increases the house’s appraisal value.  
  • Loan consolidation—because the value of home equity loans can be high, they are a beneficial way to satisfy multiple credit charges and loans. You can focus on repaying one loan while giving yourself the chance to save on the interest.  
  • Investment and business—you can start investing or launch a business from the funding hidden in your home. Both require a significant amount of funding at the start, and a home equity loan can be the solution to that. 
  • Retirement support—an additional source of income can be the home you have owned for decades. It can help pay for sudden expenses or purchase needs that can improve the quality of your retirement. 
  • Tuition and educational expenses—a home equity loan can help you support your or a family member’s education. The funds are accessible and can help support any area of educational needs.   

Overall, home equity loans are a valuable financial tool. They can provide more funding than regular personal loans while offering more reasonable qualification criteria. With a home equity loan, you can achieve some of your personal goals more quickly.

Home equity loans with Alpine Credits 

One reliable source of home equity loans is Alpine Credits. For the past few decades, we have been helping Canadians access their home equity through a quick and simple approval process. The application process is straightforward, making financial support accessible to homeowners of different backgrounds.  

There are three steps to getting a home equity loan from Alpine Credits. 

  1. Apply online—the form will ask you to provide some personal information and the appraised value of your house. This step can be completed within minutes. 
  2. Receive results—Alpine Credits processes applications faster than major financial institutions so that you can hear back in as little as 24 hours. 
  3. Use the funds—the money can be used for your financial needs, whether loan consolidation or home renovations.  

As long as you have paid at least 25% of the property’s value, you are eligible for up to 75% of the home equity. Unlike traditional financial institutions, home equity loan applicants do not need to provide their income statements or credit scores

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Frequently asked questions

Home equity loans do not affect your primary mortgage. Lenders will only use your outstanding mortgage to determine how much equity you have. However, repaying a home equity loan is an additional financial responsibility along with your existing mortgage. 

The most prominent downside to a home equity loan is that you need to own at least 25% of your home to access it.  

With Alpine Credits, you can borrow as much as 75% of your home equity. The amount you’re qualified to borrow depends on how much equity you have and the appraised value of your home, so a definite number is different for every homeowner.