One of the popular categories of secured loans is a home equity loan. The important factor of this debt is the requirement of collateral at the time of application submission. When you take a loan for the purchase of a house, your house is collateral. The lender will only seize your property in case of loan default. All the financial institutions of the UAE provide the best home equity loans. There are so many risks and benefits of using Home Equity Loans.
Before applying, you should know about them. So, taking a loan becomes a worthwhile step in your life. The best varieties of loans are offered by the Emirates Loan including finances for home equity purposes. Even, this company provides the option of flexible terms. You can easily negotiate with their professionals about the lender’s terms and conditions.
What are home equity loans?
Another name for this loan is a second mortgage. Through the equity of a home, a borrower will be able to obtain the debt. Just like other debts of mortgage, you can repay the monthly installments after getting the funds from the lender.
In general, the debt’s terms for repaying are mostly from five to thirty years. However, it will decide on the debt amount and the credit history of the applicant. In addition to buying a house, many individuals in the UAE use this finance for their other needs. For example, renovating old homes, meeting any medical expenses, etc.
All lenders provide a specific percentage of loans. They allow getting a loan of 75%-85% of your selected house’s cost. The best factor of this loan is that it comes with a fixed interest amount. Therefore, the rates are low as compared to personal debts. Emirates Loan is a helpful financial company for guiding their customers about loans. They suggest choosing a loan as per your need and with a low-interest rate.
Benefits of home equity loans
Whenever you decide to take a financial move to purchase a new home, you have to check the debt’s benefits. As a result, you will choose a loan with good terms that will not enhance financial stress on you. The major benefits are:
Fixed interest rates:
In the whole tenure, your debt is with the repayments of fixed interest rate. It means that the financial market has no effect on the increasing or decreasing of the interest rate. The interest amount remains constant for every installment.
Predictable monthly payment:
Due to the fixed interest amount, the monthly installments are also constant for the whole repaying period. With the benefit of predictable monthly payments, you can make your budget of finances accordingly.
The lenders provide the details of their different loans online also. Thus, it is easier to easily compare the lenders for offering their debts. A home equity debt is lower in interest rate also than other debts. The lenders demand the collateral which decreases the risk of the borrower’s chance of loan default. That’s the reason for low-interest rates.
A longer period of repayments:
The debt will only become affordable when a lender offers it with a longer period of repayments. In particular, the advantage of a longer period is that the monthly installments are lower. Thereby, you will easily manage your budget accordingly paying off the payments.
Another benefit is tax-deductible on the basis of the interest rate that a borrower will pay. This factor will reduce the stress of tax that every individual have to pay. It is a kind of additional savings that will help you in the future also. It is a good idea if you take advice from a financial advisor.
Risks of home equity loans
Just like amazing benefits, there are also some risks of getting a home equity loan. You have to consider these risks before applying for it:
The factor of losing your home:
Anyone who fails to repay the installments may face the problem of losing their home. But, it is not much risky if you focus on continuously paying off the debt payments
In the United Arab Emirates, lenders give equity loans only when you meet their strict criteria. Generally, the lending criteria are high for this loan in contrast to other types. The lenders obtain the ownership right of 15%-20%. Moreover, the credit score & history must be solid. They can easily seize the property if you will not repay the complete debt within the tenure.
Like traditional loans, it is different in the time requirement for the application process. The loan providers check the complete details of your application request. This process may need a few weeks or one month to give approval to the applicants. This process is longer and not suitable when you urgently need a debt amount.
This kind of loan comes with numerous additional charges just like a primary mortgage. Due to these charges, the debt’s cost will become higher. The charges may include origination, processing, fees, etc. Paying off these costs is necessary to get a loan. Normally, the range of cost is from 2%-5% of the debt.