How a Home Equity Loan Works & Benefits – Zen Fintech

Are you surfing the web to find the finances for your home renovation or to cover unexpected expenses? Home equity loans can help you in a better way. This loan is designed to help you arrange funds for several financial projects or needs.

What is a Home Equity Loan?

A home equity loan, also known as an equity loan or second mortgage, is a type of loan through which you can borrow a large sum of money using the equity of your house as collateral. You can get this loan from financial institutions or banks on the appreciated value of your property.

It is helpful for homeowners in many ways, such as paying off the existing mortgage interest or making strategic investments. Typically, they have fixed interest rates and tenure, which means that you can plan your future finances accordingly.

Pros and Cons of Home Equity Loan

We have mentioned the pros and cons of a home equity loan for your better understanding:

Pros of Home Equity Loan	Cons of Home Equity Loan
Interest rates are low compared to other loan types You can borrow a large amount. You can use the fund for a variety of purposes Monthly EMIs and repayment term is fixed in home equity loans You can increase the value of your property by using the funds for renovations The approval process is faster than the other loan types	Chances of losing your house if you fail to repay the loan amount Additional fees are associated with it, such as application costs, appraisal fees, and more May adversely affects your credit score as it is considered as a second mortgage The loan amount can be used for limited purposes as many banks in the UAE are providing home equity loans for home renovation purposes

Eligibility Criteria for Home Equity Loan

In the UAE, expats and nationals can take a home equity loan by meeting the eligibility criteria established by the banks.

UAE nationals have the advantage of typically borrowing a loan of up to 85% of the value of their property. On the other hand, this rule might be stricter for expats as they are only allowed to borrow a maximum of 80% of the property’s value.

Other factors also play a crucial role in determining your eligibility for a home equity loan, such as your credit Score, existing liabilities, income, and more. With a good credit score and a stable income, you can easily take out an equity release loan.