Getting a bank to lend us money if we go through financial problems is an almost impossible mission. But if we have a home owned, there are several private equity companies that can grant us their home equity loans. These products can be useful for, for example, reunifying debts, although they also have their drawbacks. In this article we review its lights and shadows so that we can assess whether they suit us.
This is the good thing about loans with a property as collateral
A credit with a mortgage guarantee allows us to obtain financing if we put a property we own (a house, a premises, a garage) as a guarantee of payment, as its name indicates. It can be granted by both a normal bank and a private equity company, although in the second case we can enjoy the following advantages:
- High amounts: these companies can lend us up to 40% or 50% of what our property costs.
- Long repayment period: in general, they will give us between 15 and 20 years to repay the loan.
- Payment flexibility: in some cases, we may enjoy a partial grace period in the first years of the credit’s life. Thus, during that time we will only have to pay interest.
- Suitable for clients with a delicate profile: these companies can approve our request even if our income is not stable or we have unpaid debts registered in delinquent files.
In addition, the management of these products is usually faster than that of mortgages for home purchases. For example, Suitaprest (a leading company in this sector) approves applications in less than 24 hours, sends an appraiser in two or three days, and allows you to sign the credit 10 days later.
And these are the risks of these products
Not surprisingly, taking out a loan through these private equity companies also has its downsides. These companies take a higher risk than banks, so their products tend to be more expensive. Let’s see what that translates to:
- High interest: it is usually between a minimum of around 10% and a maximum of more than 15%, which places it above that of mortgages and personal consumer loans.
- Opening / formalization commission: in general, we will have to pay a commission when signing the contract, the cost of which usually exceeds 1%.
- Formalization expenses: we will also have to pay certain additional expenses, such as the appraisal of the home or the steps taken by the company.
To this we must add the risk of losing our property in the event of default. Let us remember that the guarantee of these loans is a property, so if we delay in the payment of the monthly payments, in the long run the company could request its embargo to pay off the debt.
So, should you take out these home equity loans?
It depends. Loans with a property as collateral can come in handy if we need large sums of money and the bank does not lend them to us. For example, they can be a good option if we want to reunify several debts, if we need financing to pay inheritance tax for an inherited home, etc.
However, we must not lose sight that we can lose our property if we are not on payments, and they are more expensive than bank loans. For this reason, the ideal is that we consider them as a last resort and that we make sure we can meet the monthly payments with our income.