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BUYERS GUIDE
See What Your Home is Worth (Home
Equity)
by Aditya Thakur
If you thought your home is worth nothing except for living
purposes, then think again. It might be holding a treasure,
still waiting to be explored. Wait before you deface it
with a spade. What we mean is the equity that your home
has kept on amassing all through the years. Home equity
is the actual worth of the home in the market.
The equity in the home normally ascends. It is primarily
because of the efforts put in by the homeowner. The owner
keeps on making new improvements to his home according
to his requirements. He may add new storeys to his house,
or may change the flooring. These may, besides adding
to the value of the house aesthetically, attract more
tenants.
There may also be a rise in home equity because of no
efforts by the homeowner. Real estate has become one of
the safest options to place ones bet on. This has given
a boost to the property prices, with the prices jumping
by 125% in some posh locations. Some localized circumstances
like improvement in road infrastructure, launch of a shopping
mall, etc. too can be behind this increase in home equity.
Home equity will be of immense help to people who do not
prefer to sell their home, but need resources to meet
over some contingency. Resources are needed largely for
spending on home improvements. However, the loan amount
can be used for other purposes too without any limitations.
Homeowners are allowed to take loans against their home.
These loans are called home equity loans because they
take advantage of the equity.
Having a solid collateral base of home, the lenders feel
less exposed to risk. Lenders charge a lower APR on the
home equity loans. The home equity loans are thus cheaper
than the other loans.
The equity is reduced by the amount of loan taken against
the home. As the balance on the loan reduces with monthly
repayments, the equity in home increases. Except for reverse
mortgages, all other loans and mortgages follow this principle.
A fallacy doing rounds among the borrowers is that their
house is under risk of repossession if they take up a
home equity loan. However, this is not completely true.
The lender just has the lien to your home, which can only
be exercised if the borrower is not able to repay the
loan. In the meanwhile, the customer can continue living
in his home without any intrusion.
The lender can initiate the proceedings for repossession
of the house only when the customer has not paid the installments
on the loan. Rarely would a person knowingly put his home
in danger. The borrower, after studying all aspects of
his financial condition, determines the monthly repayments.
But, rarely is the planning foolproof. There are some
situations that you might not have provided for; and this
becomes your vulnerability. Because of the difficulty
in paying the installments, the customers fear repossession,
which can become a reality very soon.
Avoiding loans against your home for every frivolous reason
can be a way to stop this from becoming a reality. True,
home equity loans are cheaper and easier to get. But think
of the after-effects of any such move. Your circumstances
may change, making the repayments difficult.
Numerous loans against ones home will only result in depletion
of the home equity. The savings in equity will work in
the same way as the savings in money. Therefore, even
if you do not have savings, you can always rely on your
home to offer support. Complete exhaustion of the equity
will disqualify you from taking help of the home equity.
So, before taking loan against your home the next time,
think twice. Think what your home means to you, and how
you are going to do without it. This will ensure that
the decision regarding the future of the home is taken
with added rationality.
About the Author
Aditya has completed his masters in mass communications
from Jamia University. If you need UK Personal secured
and unsecured loans visit http://www.ukfinanceworld.co.uk |
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