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The Truth about Equity Loans
If you've thought of refinancing your home and taking cash out, consider the alternative: an equity loan. Equity loans can be a great deal if you already have a low interest rate on your home and just want to take out a small amount of cash. The more money you take out, the more sense it makes to just refinance your mortgage.
Weigh your options carefully but if you plan on paying off your equity loan in the next couple of years it could be a much easier and cheaper way to get the money you need. If you take your time paying it off and are taking out a large sum, it's probably a better idea to refinance rather than take out an equity loan.The advantages of equity loans
The biggest advantage of taking an equity loan is that there are no closing costs, so you are spending a smaller amount of money in return for the money you take out. The interest rates are typically lower, so as we talked about before, it makes more sense to have a lower interest rate especially if you are planning on paying off your loan right away.Behaviour to watch out for
Some lenders will try to sell equity loans that the customer can't afford. Be sure your lender doesn't ask you to falsify your income in order for you to qualify for the equity line of credit. Be sure you can make the payments on your loan, don't allow the lender to force you to default on your loan and possibly lose your house.Consider mortgage payment insurance
You may want to consider a mortgage payment insurance if for some reason you can't make the payments on your mortgage or home equity loan. It is essentially a protection for yourself and your home. You may not feel its worthwhile now, but it would be a lifesaver if you were to lose your job or lose your monthly income.