HOW TO ACCESS THE EQUITY IN YOUR HOME
Let’s look at short-term home equity loans – what they are, the benefits of using them, and common uses for quick access to funds for 2 to 36 months.
What is a short-term home equity loan?
A short-term home equity loan uses the equity you have in your home to provide you with funds for a variety of purposes (equity is the difference between the current ‘fair market value’ of your home, less any mortgages or other loans secured by the property).
A short-term home equity loan can be obtained if you have an existing mortgage, or own your home outright. For example, if you have a mortgage loan of 50% of the current value of your home, a short-term home equity loan allows you to access some portion of the equity you own (being the other 40% of the current value). It is important to bear in mind that there will be a limit to the amount of equity you can access or borrow against. Generally 70% of the property value minus any existing debt secured against the property.
Traditionally home equity loans were for longer periods (often 5 years to 15 years). Though it’s becoming increasingly clear that longer term loans do not always suit everyone’s circumstances – particularly for borrowers who may only need access to funds for a shorter period of time.
The good news is that there are a number of alternative and private lenders in Australia who provide short-term home equity loans, which typically have a duration of 2 to 36 months.
The benefits of using a short-term home equity loan
Home owners achieve equity based on their initial deposit, the component of principal paid in regular mortgage payments with a principal and interest (P&I) loan, and any increase in the value of the property over time. Typically, if you’ve owned your home for a number of years, it is likely that you have built up some additional equity.
Short-term home equity loans offer a range of benefits to Australian home owners:
- Home equity loans offer low interest rates compared to alternatives such as personal loans or credit cards.
- You can access a large amount of money in a short time.
- Home equity loans in Australia are readily available from a variety of lenders, including private lenders.
- Short-term home equity loans often require minimal paperwork and you can often apply online
Why you might take out a short-term home equity loan
There are a number of reasons home owners may consider a short-term home equity loan to access funds quickly, including:
- Renovating your property: using a short-term home equity loan for renovations that add value to your home is one of the most common uses for this type of funding – particularly in preparation for the property’s sale.
- Purchasing an investment property: a short-term home equity loan is often used as a deposit for an investment property, with an additional mortgage secured by the new property.
- Paying a large bill: a short-term home equity loan may be used to pay a one-off large tax bill, or assist with ongoing school fees.
- Debt consolidation: a short-term home equity loan may be used as an alternative to paying off personal loans or credit cards that have high interest rates.
- Share investment: a short-term home equity loan is increasingly used to acquire publicly-listed shares.
A short-term home equity loan can also be used for business purposes, including the purchase of stock or equipment, paying wages, and general cash flow needs.
How to apply for a home equity loan
Lenders have varying home equity loan application requirements and processes. At Mango Credit, you can submit an enquiry by phone, email or apply online. Upon receiving your enquiry or application, we email an indicative quote that details the interest rates, costs, loan structure and document requirements. If you agree with the proposal, we will then issue a formal and more detailed letter of offer. You return the signed proposal with the required documents, and we ask our solicitors to issue security documents or order a valuation if needed. Once we receive the security documents, we settle by electronic transfer of funds. Click here to apply for a short-term home equity loan.
Is a home equity loan the same as a second mortgage?
If the borrower has an existing mortgage on the property already, a home equity loan is considered a second mortgage. In the event of a foreclosure, the first mortgage lender is first paid before the home equity loan provider gets paid. However, not all home equity loans are second mortgages. It’s not a second mortgage if the borrower owns a property free and clear and takes out a loan against the value of that property. In this case, the home equity loan lender is considered a first-lien holder.
How to get a home equity loan with a lower income
There are products available that are tailored to lower-income earners, or people on a single income. With a home equity loan, the more equity you have in your property, the easier it is to borrow. Having really good credit scores and a low debt-to-income ratio also gives you a higher chance to get approved. At Mango Credit, we offer flexible loan terms and underwriting. There’s also no credit check or income assessment.
Can you refinance your home equity loan?
Yes, you can refinance a home equity loan. If the current home equity loan rates available in the market are lower than the current rate you have on your home equity loan, then it may be worthwhile considering a refinance to help you save money. It may also be beneficial to investigate refinancing if you have built up substantial equity in your home.
If you have built up equity in your home (via repayments and an increase in property value over time) and you need access to a large amount of funds quickly, a short-term home equity loan may be worth considering. You can apply online for a short-term home equity loans. This form of funding can be used for a short period of time (2 to 36 months) for a variety of purposes.
Get started! Contact us today.
We offer short-term first mortgages, fast second mortgages, caveat loans, home equity loans and business loans. And you can quickly and easily apply online.