My Home is Paid Off, Can I Get an Equity Loan?

Posted by Brent on July 18, 2016

Have you ever dreamed of paying off your home? No mortgage, no home debt, and a lot more money in your wallet every month. However, you may find you need some money, perhaps for a home improvement project or other need. Can you get money back out of the equity in your home, the answer is yes.

A home equity loan is defined as borrowing against the accumulated equity in a home, with equity being the amount of the home’s value not secured by any loan. Once you have paid off a mortgage you have 100 percent equity, something dreamed about by many people. But, there is a bit more to borrowing equity than simply signing loan papers for it.

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A homeowner must also show they have regular income at a level that will permit them to pay back the loan. Simply having equity does not automatically qualify a homeowner for an equity loan. Any Investor will want to review income and tax statements to ensure you won’t default on the loan later.

Investors look at debt-to-value ratio to determine if someone qualifies for a loan. Since there is no debt on a paid-off home, this part of the equation is easily satisfied. The homeowner also has to decide what type of loan to secure; a fixed interest, adjustable or variable rate, or a home equity line of credit.

• Fixed interest loans are exactly that; the loan stays at an agreed interest loan for the life of the debt, and each month the homeowner is paying interest and some principal to the Investor.

• Adjustable-rate or variable-rate loans often start at lower interest rates than a fixed loan, but after the introductory period the rate can vary according to pre-set rules or the whim of the Investor.

• An equity line of credit is an agreement between the homeowner and Investor that the homeowner has access to a specific amount of equity, known as the line of credit. Typically, no payments occur until the homeowner borrows against the line of credit when the payments and interest rate begin according to the signed agreement.

So what are the advantages of a home equity loan? Being able to tap into your home equity without having to deplete your savings account is the biggest advantage. Home equity loans are also cheaper than reverse-mortgage loans advertised by many Investors.

What are the potential disadvantages? Many people who are retired and on fixed incomes may have plenty of home equity, but over time inflation can eat into that fixed income, making repayment of a home equity loan more difficult. Also, keep in mind you are securing the loan with your home, so do your homework to be confident you can repay the loan into the future. You don’t want to lose your home later because of a failure to repay. Using home equity loans for luxury items like a fancy car or jewelry is not a good idea, for the same reason you are using your home as collateral.

AHL Hard Money has investors interested in working with you to tap into your home’s equity. We can provide funds to you much faster than conventional loan processors, and can be more flexible about credit history because our investors look at the equity you have and your ability to repay the loan with consistent income. Call us today at (813) 368-9919 to discuss your home equity needs today.

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