Sometimes, to acquire assets, carry out projects and ideas or face unforeseen events, it is useful to have a capital bonus that ensures the stability of the monthly budgets of individuals and companies. In this regard, it is worth considering the option of requesting a home equity loan.
In this article we will explain in detail what are home equity loans, what are their characteristics and which entities grant them, with special focus on private capital financial entities.
What is a home equity loan
Loans with mortgage guarantee are financial products with which both companies and individuals can obtain a liquidity contribution from a financial institution. The particularity of this type of loan is that they require that the applicant make a contribution a farm as collateral of the operation. It is essential that the property that serves as collateral for the loan is free of encumbrances; that is, it is not subject to any type of debt or lien.
The banking entities that grant this type of mortgage-backed loans can be either traditional banks or private capital finance companies. It is convenient to take into account that the conditions and requirements will be different depending on which entity acts as a lender.
Characteristics of mortgage loans
As previously mentioned, the peculiarity of this type of loan compared to other financial products is that in order to apply for it, it is necessary to have a property that can be used as collateral.
In the case of private equity home equity loans, there are other interesting features to consider:
- The amount of financing can be up to 50% of the appraised value of the property put up as collateral.
- They are usually awarded with short deadlines, between 1 and 3 years approximately, since they are products designed to solve specific liquidity needs.
- The farm provided as collateral can continue to be used throughout the repayment period of the loan.
In what situation to request a mortgage loan
There are various situations in which applying for a home equity loan turns out to be the most appropriate option. The following are the most frequent:
- Promotion of projects. Often, to undertake or carry out personal or business projects in operation, a punctual and temporary injection of capital is necessary. For this, mortgage loans are extremely interesting.
- Sometimes, to obtain liquidity, they are requested loans with mortgage guarantee for reforms or rehabilitation of farms. In these cases, the loan is usually repaid with the sale of the renovated or rehabilitated farms.
- For developers, home equity loans are an excellent product because, since they usually have several properties to put up as collateral, they can qualify for high loans. In these cases, the loans cover the construction costs, and the repayment is made with the sales of the resulting farms. However, traditional banking has restricted the loans with mortgage guarantee to promotersTherefore, they tend to resort to private capital entities.
- Debts or liens. Mortgage-backed loans are a very good option in cases where the debts are large and can lead to foreclosures, since they give time to make payments due with peace of mind.
- Acceptance of inheritances. The costs derived from accepting an inheritance can be very high and, when you do not have the necessary credit to face them, home equity loans can be an ideal option.
Which entity to choose to apply for a mortgage loan
As previously mentioned, there are various ways to access these financial products, since both traditional banking and private equity firms offer home equity loans. Although traditional banking offers lower interest rates, it must be considered that private capital entities have many advantages to take into account before applying for a mortgage loan:
- Speed and agility. Procedures with private capital entities are usually faster than those of traditional banks. This is essential for those who request a mortgage loan to solve an urgent need for liquidity.
- Flexibility and personalization. The requirements to request loans with private capital are lower than in traditional banking entities and there is more room to agree on the repayment terms and terms to adjust them to the needs of the applicant. In addition, private capital entities can avoid the fact that clients are on delinquency lists, such as ASNEF or RAI, if they have a solid mortgage guarantee.
- In private equity entities, more advice is usually given than in other entities through advisers, economists and lawyers. The purpose is that the financial products that the client requests are adapted to the particularities of each case.
- Safety and reliability. Private equity financial entities must register and be approved by the Bank of Spain, which regulates and supervises them. Therefore, security and reliability prevail in financial processes in general and in the granting of loans in particular.
What does the financier value to grant the loan with a mortgage guarantee
When a loan with a mortgage guarantee is requested, financial institutions must assess the risk associated with the operation. To do this, they mainly take into account the following factors:
- Return of interest. It is assessed how the interest derived from the granting of the loan will be returned; that is, what will be the terms of return and of what amount.
- Form of cancellation of the operation. It is important for the bank to know how the operation is going to be cancelled; that is, how the transaction will end. The most common ways are banking and the sale of a property, which may or may not be the same one that has been placed as collateral.
- The liquidity of the guarantee. For granting of loans with mortgage guarantee it is essential that the property provided as collateral be of sufficient value. For this, the appraisal of the property is taken into account, which not only takes into account the age of the property and its state of conservation, but also the materials with which it is built and the location, among other factors.
- Viability of the business project. In the case of home equity loans for businessesIt is also essential to know the feasibility of the company requesting the capital. If the company is profitable and they have a good run, the financial company has more room for maneuver to grant these loans.
In conclusion, Any individual or company can request a loan with a mortgage guarantee provided that you have a property free of encumbrances as collateral. Both traditional banks and private equity finance companies can grant them. However, the most appropriate option when looking for greater flexibility and speed with security, reliability and the best advice is apply for a home equity loan with private capital.