Your house is probably your most valuable asset. But you can’t pay your bills with your home. The value is often locked up and illiquid. The good news, though, is that it’s possible to unlock the value in your home and turn it into cash. A home equity loan allows you use your home’s worth to get access to capital that you can put toward whatever you need. It’s even possible to tap your home’s equity to help you protect your finances in the event of a job loss.
What is a Home Equity Loan?
When you make payments on your home, and as your home increases in market value, you build up ownership — or equity. This equity can then be used as security for you to borrow money. You still repay the loan over time, but you have the potential to borrow more than would be available to you through an unsecured loan or a credit card.
There are two main types of home equity loan:
1. Second Mortgage
With a second mortgage, you receive a lump sum. The lender looks at the equity you have available in your home, and then offers loan terms. You only get the loan once, though, so if you need more money later, you have to apply for a new second mortgage. Your payments are made in lump sums, over a set period of time.
Your second mortgage can be fairly easy to get, since you don’t have to worry as much about your credit situation. There are plenty of lenders that will primarily consider your equity and give you a loan based on that information. However, the terms are often less flexible.
2. Home Equity Line of Credit
A home equity line of credit is a little different from a second mortgage. Rather than getting a lump sum, you’re offered a revolving line of credit. You can draw on the line of credit as needed, and you make minimum payments. It’s a lot like having a credit card secured by your home’s equity. However, you can usually get more from a home equity line of credit, and the interest rate might be lower.
Lenders will be more interested in your credit with this arrangement, though. While your home equity is an important part of the decision, lenders also want to see your credit situation, so it can be harder to qualify. However, a home equity line of credit is more flexible, and can be more useful as a safety net in the event of a job loss.
How a Home Equity Loan Can Be Used as a Safety Net
Because the funds from a home equity line of credit can be used for any purpose, it’s possible for you to have them available as a safety net in case of a job loss.
However, it’s important to realize that you don’t get a home equity line of credit when you need it. Instead, you apply for your line of credit before an emergency situation arises. The idea is to use your home equity line of credit to supplement your emergency fund. You have the line of credit available, but you don’t use it unless you need it.
Once you have the line of credit established, you can have peace of mind because you know it’s there — just in case. If you lose your job, your line of credit should be big enough to help you cover some of your expenses while you look for a new job. You can draw on the money as needed. In fact, some lenders actually issue a debit card tied to your home equity line of credit so you can access your funds easily.
For best results, your home equity line of credit should be used as a safety net in conjunction with other efforts to shore up your finances. Rather than relying entirely on the home equity loan, consider working to build an emergency fund. You can also make a list of expenses that can be cut first, in the event of a job loss.
When you use your home equity line of credit as part of a comprehensive plan involving other emergency backstops, all of your assets will go further during a job loss.
Why get a Home Equity Line of Credit from Secondmortgage.ca?
Certainly, Secondmortgage.ca has competitors but they are not all created equal. Moreover, we specialize in equity-based lending and know how to get challenging mortgages approved. Above all, because we specialize in these types of approvals, lenders offer us preferential rates and flexible terms because we provide them with high volume. Therefore, this translates into better options and bigger savings for our clients.
To sum up, if you are considering getting a home equity line of credit to use as a safety net, make Secondmortgage.ca your first call! We offer free consultations at 1-866-306-2637 and if you apply online, we can begin working on your approval today!