No equity home loan
No equity home loans are those loans that are provided irrespective of level of equity a person has in his home. It is a more attractive name given to popular LTV or high loan to value home equity loans. One of striking features of no equity home loans that attract many people is the amount that can be obtained by way of mortgage. Most of no equity home loan lenders are providing up to 125% of value of home. A person would hardly find any other loan facility in which he can get loan amount more than value of home.
Though home is mortgaged, excess amount over home value is not covered by way of mortgage. Thus, no equity home loans result in creation of secured as well as unsecured home loans. No equity home loans are quite popular in countries like United States where many people go for these loans. As per the study conducted, most of people in U.S are getting no equity home loans for making repayments of their credit card debts, which have assumed menacing levels.If compared to sub prime no equity home loan origination in 1993, when overall no equity home loans amounted to $25 billion, it is found that in present times these loans have increased by great levels to $180 billion.
Question that needs to be answered here is why such loans became so popular in past few years and still attract many homeowners each year There are two main factors that can be attributed towards this behavior. First is the rising value of homes. With home values appreciating continuously, equity available in the home has also rises. Second factor that leverages this fact is low interest rates. Home loan rates have come down drastically in the past few years. With both these factors, homeowner is able to get inexpensive large amount money that can easily be used for repaying high interest rate debt. Similarly, many people are financing home improvements by way of no equity home loans.
If everything is good with no equity home loans, where is the problem Problem actually lies in the fact that a person obtains money more than the value of his home and if repayments are not made in time, it can really become very menacing. And this is what that has actually happened in United States. Many people have fallen victim to these loans and are now facing threats of foreclosures. Sub prime mortgage problem, which has become quite rampant in United States, has no equity home loans as one of its causes.
Another aspect that should be understood is that when any lender provides money more than value of home, it would definitely cover the risk in some way.This is done by way of high interest rates as compared to traditional home equity loans and by charging higher fee. Borrower does not mind both these factors so long as he is getting 125% of home value as loan.Many no equity home loan lenders also require a person to obtain PMI or Private Mortgage Insurance. This also creates burden on the loan balance.
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