No Equity Home Loans
The below information on no equity home loans will help you understand no equity loans in a better manner so you can plan your borrowings without doubt.
|
|
What is No Equity Home Loan?
No equity home loans have become fairly popular in developed countries like United Kingdom and United States etc. No equity home loan lets a person borrow more than the value of property through mortgage. It is quite common to borrow 125% of value of property under such loans.
In the recent years, property and home values have escalated considerably and interest rates on loans have fallen down. These two factors have played a major role in luring many people to borrow money through equity home loans. These loans allow people to exploit the equity in home that they do not actually possess. Talking in technical terms, a no equity loan creates both a secured loan and an unsecured loan. This is because all amount financed over the amount of equity in home would create an unsecured loan. |
|
Many financial experts have termed these loans as highly risky and expensive loans that are aimed to lure people who desperately in need of cash. Though interest rates on most of the loans have come down in the recent past, but no equity home loans are generally offered at high interest rates. This is done for covering the risk associated with over lending and real estate prices depreciation. According to a rough estimate the interest rates attached on these loans are about 2-6% higher than the interest rates on the traditional home equity loan. Apart from high rate of interest, no equity loans also come with many types of fees and charges.
The total cost of loan depends upon several factors like credit rating of a borrower, existing interest rates and the lender. A lot of lenders require a borrower to buy PMI (Private Mortgage Insurance), charged anywhere between 0.5-1% of the loan amount. The borrower needs to understand that he needs to get PMI for covering any amount that is more than 80% of the value of home.
|
|
There are also some types of tax implications regarding these loans, because any loan that is greater than what your home is worth will not be deductible on your taxes. It is advised that a person should consult tax advisor if he has taken a no equity home loan and is applying for tax deductions.
Selling of home after taking above type of loan also becomes problematic. This is because if a person wishes to sell his home that is worth $50000 and against which, he owes $62500 will be quite difficult. If the person does not deposits the full amount than this may result in foreclosure or bankruptcy. A lot of people have lost their homes because of the no equity home loans. It is advised that a person should try to avoid no equity home loans as much as possible.
|
