If you’re in need of some extra cash to fund a down payment to your house or to keep up with your monthly mortgage dues, you may have considered taking out personal loans.
Personal loans and home equity loans are two of the most availed financing options. In fact, they are relatively easy to get-because of less-strict lending requirements compared to other types of loans. Equity loans, like personal loans application, can be done online and are generally processed and approved in a matter of hours. Despite the fact that personal loan seems to be an attractive and less-complicated loan type, its high interests and other drawbacks make mortgage loan a more practical option.
Should I get a personal loan for the down payment of my home loan?
If you don’t have money to pay for your home loan’s initial down payment, a personal loan may seem to be a viable option, because you can get it on the spot. But, if you have other sources, why don’t you try to exploit them first before you opt for personal loans which have very high-interest rates?
Is it practical to apply for personal loans to avoid missing the due dates?
First, there are lenders who provide reasonable terms for personal loans. If you have the money to pay it back before the loan term ends, why not? But, if you have no other immediate source of cash to repay high-interest personal loans, getting a home equity loan would be a better idea. Not only would you be able to free up some cash for your other needs, but you also don’t have to worry about accumulated interests which can double or triple the amount of loan, depending on how many times you missed payments.
Home equity loan or second mortgage usually comes cheaper than most personal loans, and it is easy to process. You can also get as high as 80% of the value of your equity. Let’s say, your mortgage costs $1,000,000 and you already paid $700,000. That means you can take out up to 80% of your $700,000 equity. So, which do you think is more practical? Getting a loan from your own equity or from an unsecured loan? Remember that the reason why personal loans are costly is because the borrower lends you money without security, so they have to compensate for the risk of not being paid back.
Here are some factors to consider before getting a loan:
If you will borrow a personal loan from a lending institution you can secure it against something of value (secured personal loan) like your home, vehicle, and equipment. The interest rate is usually lower than a loan with no collateral because the lending institution can seize your asset in case of default to recover their losses. Or, you can opt for an unsecured personal loan or one which does not require collateral.
Compared to secured loans with collateral, unsecured loans have higher interest rates. They also come with strict approval requirements like good credit, steady flow of income and other proof of their capacity to repay on time. But, there are also personal loans for people with bad credit and they usually come with a higher interest because of the risk involved in lending to high-risk borrowers. So, the lower your credit rating, the higher the interest rate and vice versa.
Personal loans have a shorter repayment period (weeks, months or years) compared to home equity loans. The longer the term of the loan, the lower is the monthly payment. But, it incurs higher interest over time. Personal loans have higher monthly repayments, shorter loan terms but lesser interest overall if you pay immediately. It is because you are able to pay off the principal faster compared to home equity loan. But, if you are planning to get a big amount of money for major purchases and you believe you cannot repay them all in a year or so, getting a personal loan may not be a good idea. A home equity loan would be a better choice.
If you’re planning to pay for the down payment of your home or to meet your monthly repayments when you’re hard on cash, unsecured personal loans can help you. You can spend the funds any way you want and you can also enjoy the flexibility in its payments structure-as there are short-term and long term personal loans available. But, you can expect the interest rates to be higher than most loans, and there are also tougher lending requirements that you have met. If you have a poor credit score, you may not qualify for lower rates-but you can still take the high-interest personal loan. If you have equity in your home, why don’t you get a second mortgage at NSW Mortgage Corp to free up some extra cash so that you can pay for all your current and future needs? It has cheaper interest rates, lower monthly repayments and higher loan amount. Contact NSW Mortgage Corp today and learn more about the benefits of the second mortgage.