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SHORT-TERM HOME EQUITY LOANS: WHAT THEY ARE & WHY THEY’RE WORTH CONSIDERING

ik@ippei.com (Tori Klein) — Thu, 26 Dec 2019 14:56:38 GMT

In this article, we’ll look at short-term home equity loans to include what they are, how they work, their uses and benefits, and finally how you can qualify for one.

What is a home equity loan?

A home equity loan uses the equity you have in your home to provide you with funds for a variety of purposes. Your equity is the difference between the current ‘fair market value’ of your home, and what you still owe on your mortgage. Equity is built up as you pay down your mortgage, and it will increase as the value of your home increases over time. You can then use this equity to access funds for a variety of purposes.

Home equity loans are popular in Australia, and are attractive as they typically have lower interest rates than other forms of finance. Traditionally, home equity loans had terms (five to 15 years duration). Though there’s now a growing demand for short-term home equity loans, which typically have a duration of 2 to 36 months.

How does a short-term home equity loan work?

A short-term home equity loan can be obtained if you have an existing mortgage, or own your home outright. Lenders will assess the amount of equity you have in your home and your capacity to repay in addition to your first mortgage . Generally, 70% of the property value minus any existing debt secured against the property.

What this means in real terms is, if you own a home worth $1 million, and you have a mortgage of $500,000, then you have $500,000 of equity. If you take out a short-term home equity loan, for a total of 70% LVR on the equity available, you can borrow up to $350,000.

Once approved for a short-term home equity loan, you will be expected to pay principal and interest each month over an agreed period of time.

What can you use a short-term home equity loan for?

Quick access to funds, often for short-term use, can be accessed using a short-term home equity loan. In Australia, borrowers can use equity in their home to borrow funds for a variety of purposes including:

Home renovation : Renovations are one of the most common uses for short-term home equity loans in Australia, and are a great way to add value to your home. This strategy may be applied to prepare your home for sale, or to improve your lifestyle.
Investment property purchase : A short-term home equity loan is commonly used as a deposit for an investment property (the balance of the purchase price is then secured against the new property).
Debt consolidation : Short-term home equity loans can be used to consolidate multiple sources of debt and collectively pay off personal loans and credit cards.
Pay a large bill : You might have a large tax bill, or school fees, that can be addressed through a short-term home equity loan.
Business use : Short-term home equity loans may be used to help with working capital in a business, or to fund the purchase of inventory or stock to grow a business. A short-term home equity loan can also be used to fund a start-up business.

What are the benefits of a short-term home equity loan?

Typically, if you’ve owned your home for a number of years, it is likely that you have built up some additional equity. There are many benefits to tapping into this source of funding. Top of the list of benefits are the relatively low interest rate associated with this type of loan, compared to alternatives such as personal loans or credit cards. In addition, short-term home equity loans allow you to access a large amount of funds that align with the equity you have accrued in your property. Borrowers also love that applying for a short-term home equity loan is easy, as these loans require minimal paperwork and can often be applied for online. Lastly, short-term home equity loans are readily available from a wide range of lenders, including private lenders and fintechs.

What do you need to qualify for a short-term home equity loan?

In Australia, lenders will look at the following criteria before approving a short-term home equity loan:

The amount of equity you have in your home (agreed home value less first mortgage)
Your credit score (you can find out your credit score from a variety of providers in Australia)
Other loans (personal loans, credit cards)
Your household debt-to-income ratio

Importantly, what you think your home is worth may differ from its actual ‘fair market value,’ which is used to assess your equity. To understand the amount you can borrow against the equity in your home, lenders will obtain an independent appraisal to ensure you only borrow what’s aligned with the house’s market value.

Key takeaways

The equity you have built up in your home via repayments and increasing property values can be tapped into using a short-term home equity loan. Funds can be used for a variety of purposes, including personal and business use, and are secured against the equity you have in your home. Funds can be used for a short period of time, and in Australia you can apply online for a short-term home equity loan from a variety of lenders, including private lenders and fintechs.

WHY A SECOND MORTGAGE MAY BE YOUR FIRST CHOICE

ik@ippei.com (Tori Klein) — Thu, 26 Dec 2019 14:56:38 GMT

In this article, we’ll look at short-term second mortgages – what they are, how they work, how you might use them, their benefits, and what to consider when you are applying for one.

What is a second mortgage?

When you have equity in your property and need access to funds quickly, a short-term second mortgage can be a good option in the absence of not being able to extend or refinance your first mortgage.

A second mortgage is essentially a second loan that’s in addition to the primary (first) mortgage, secured against your property. Also known as a second lien, or secondary registered interest, it uses the equity you have in your property and, once established, means you will have two mortgages against your property.

Traditionally, second mortgages were like first mortgages , in that they were for very long periods of time (sometimes decades). However, in Australia, the rise of non-bank and private lenders has opened up the options for borrowers – in particular, offering short-term second mortgages that typically have a term from two-to-36 months. Short-term second mortgages are an increasingly popular alternative for both personal and business funding requirements.

For mortgage providers, a second mortgage means they are second in line to be paid, after the first mortgage is paid, so their risk is somewhat larger. This can be an important factor in being approved for a second mortgage, and the cost (interest rate) applicable to the loan.

How does a second mortgage work?

A second mortgage is very similar to a first mortgage, in that it is secured against your property. Importantly, mortgage providers will consider the total loan-to-value ratio (LVR) of both the primary and secondary mortgages in evaluating the loan for approval.

Second mortgages tap into the equity that you have in your property. This will increase over time as you make payments and reduce the principal, and/ or with increases in the property value. This additional equity can then be ‘released’ via a second mortgage loan.

You can apply online for a second mortgage with a range of lenders, and once approved, the loan may take the form of a lump sum (one-time loan) or a line of credit (available to be drawn upon as the need arises).

When you may consider a short-term second mortgage

There are a variety of reasons why you might consider a short-term second mortgage to access funds for a limited period. These include:

Renovations: If you are planning on selling your property, a short-term second mortgage can provide funds to make improvements to your home that can be quickly released upon the sale of the home (i.e. the first and second mortgages are paid out once the property has sold).
‘Bridging the gap’: A short-term second mortgage is commonly used to ‘bridge the gap’ between the purchase of one property and the sale of another, when the settlement timings don’t quite match up.
Investment property: You can access the equity in your property to purchase another property, using a short-term second mortgage to fund the deposit and/ or purchase.
Debt consolidation: A short-term second mortgage with a lower interest rate is often used to pay off personal loans, credit card debts, or even a large medical or tax bill.
Business use: Standard business loans typically attract a higher rate of interest than a loan secured by property, so a short-term second mortgage is regularly considered when short-term funds are required to boost business cash flow or working capital (for example, to pay suppliers and wages, purchase stock/ equipment or ‘even out’ invoice lags).

The benefits of second mortgage loans

If you have solid equity in your property, and need access to additional funds relatively quickly for short-term personal or business use, there are a range of benefits to choosing a short-term second mortgage:

Large loan amount: You can often access large loan amounts with a short-term mortgage as they’re secured by property (which mortgage providers consider the ‘safest’ type of guarantee). The amount you can borrow depends on the amount of equity you have in your property.
Lower rate of interest: A short-term second mortgage typically has a lower rate of interest in comparison to alternatives such as caveat loans or unsecured personal loans.
Higher LVR: Short-term second mortgages usually have a higher loan-to-value ratios (LVR), which means you can borrow a larger loan amount.
Fast access to funds for a variety of uses: A short-term second mortgage loans allow you to access the equity you have built up in your property relatively quickly for personal use (such as renovations to prepare your property for sale), or if you have a time-sensitive business opportunity or requirement (such as purchasing another business or boosting working capital).

If you have equity in your property and need short-term funds for personal or business use, Mango Credit makes it easy to apply online for a short-term second mortgage.

What to consider when applying for a short-term second mortgage

While there are many benefits to using a second mortgage for access to short-term funds, there are some important areas that should be investigated before applying for a loan, to include:

Equity: How much equity you have and what the total LVR will be once you have two mortgages secured against your property.
Application process: Your first mortgage lender will need to approve the registration of a second mortgage on the title of your property. The application process is a little more complex than for, say, a caveat loan, as the lender needs to value the property and run credit checks. There may also be fees associated with the application process.
Interest: Adding a significant loan amount to your first mortgage will mean you are paying additional interest.

Key takeaway

When you have equity in your property and need access to funds quickly, a short-term second mortgage can be a good option in the absence of not being able to extend or refinance your first mortgage. You can apply online through an increasing number of mortgage providers, including non-bank and private lenders, to access to funds that can be used for a variety of personal or business uses.

SHORT-TERM LENDERS OFFER LONG-LASTING BENEFITS

ik@ippei.com (Tori Klein) — Thu, 26 Dec 2019 14:56:38 GMT

Speed, flexibility, and streamlined processes are just a few of the benefits of short-term lenders. Yanis Derums from leading private lender Mango Credit, speaks with Australian Broker about their range of short-term funding solutions for personal or business purposes. Read more >

750da26a

SHORT-TERM HOME EQUITY LOANS: WHAT THEY ARE & WHY THEY’RE WORTH CONSIDERING

What is a home equity loan?

How does a short-term home equity loan work?

What can you use a short-term home equity loan for?

What are the benefits of a short-term home equity loan?

What do you need to qualify for a short-term home equity loan?

Key takeaways

WHY A SECOND MORTGAGE MAY BE YOUR FIRST CHOICE

What is a second mortgage?

How does a second mortgage work? ﻿

When you may consider a short-term second mortgage

The benefits of second mortgage loans

What to consider when applying for a short-term second mortgage

Key takeaway

SHORT-TERM LENDERS OFFER LONG-LASTING BENEFITS

Speed, flexibility, and streamlined processes are just a few of the benefits of short-term lenders. Yanis Derums from leading private lender Mango Credit, speaks with Australian Broker about their range of short-term funding solutions for personal or business purposes. Read more >

How does a second mortgage work?