Home equity loans are nothing but a second mortgage you take on your home. The amount you get by tapping out your equity can be used for multiple purposes and can benefit you in many ways. There are a few things you must be aware of before you opt for a home equity loan. They are:
1. First things first: Your home must have equity.
This is the simplest thing to remember while considering getting a home equity loan. You need to have equity to borrow against while applying for a home equity loan. Without equity, there is no collateral against which you can borrow any amount. The amount of equity must be equivalent to a percentage supplied by the lender and the amount you are going to borrow.
2. Keep your credit score in check.
Your credit score is the first thing your lender will look at to understand if you are eligible for a home equity loan. He will be supplying you with rates and plans after looking at the relevant documentation and making sure that you have a steady income that is required to pay off your home equity loan. Make sure your credit score is in check and above the required score to ensure you get the best rates.
3. Don’t use it for small loans.
The equity in your home is a large amount and a lender doesn’t expect you to borrow a small one. Different lenders offer different prices and ranges from which you can choose. But if your loan amount is less than a five-figure sum you can consider other options which may give you a plan, after all, to your needs.
4. Remember that this is after all a mortgage.
Whatever the purpose of your home equity loan, you need to keep in mind that this is, after all, a mortgage. You need to make sure all your finances are in order and you are actually going to be able to pay off your loan. The interest rates are actually higher than the first mortgage you took on your home. You must treat this with seriousness.
5. You can benefit from tax deductibles.
Canadian law allows you to deduct the amount of interest you pay on your mortgage from the total income tax. This is a lot in savings and makes for a nice hefty amount to keep in your back pocket.