Knowing the general idea of a product before you buy into it is of paramount importance; this is the same aspect with loans, you should know about the pros and cons of a loan before you apply for it.
Many financial institutions require their customers to bring forward their property as collateral in the event that they don’t repay back the loan; this type of a loan is called a home equity loan. Consumers often use them to look after major expenses such as home repairs, medical bills, or college education.
Home equity loans have high interest rates compared to credit facilities such as credit debt, simply because equity involves collateral where as credit cards do not.
To apply for a home equity loan, you must have a good and excellent credit history; equity loans are offered in two types: close end and open end. There are both referred to as second mortgages, simply because they are attached to a client’s property.
Home equity loans and lines of credit are not designed for a shorter term than first mortgage. Worth noting is that you cannot purchase a home using a home equity loan; you can only use a home equity loan to refinance yourself.
The Standard Bank, FNB and many other financial services providers have made use of customized plans for their clients. However, clients should take note that there are disadvantages associated with this facility; the reason being that it affects how much equity you have on your house if the market changes. This will mean that you end up owing your home equity loan even after selling your home.
If a client doesn’t make the required payments on his home equity loan, his home is at risk of foreclosure. In other words the client can lose his home. Clients are advised to make a wise decision coupled by a thorough financial check before they engage themselves into debt.