Home equity loans let you finance big-ticket ventures with the convenience of fixed monthly repayments at low interest rates. But what if you cannot avail of one? Here are 5 alternatives that you can opt for instead. 

Home equity loans are a great way to finance a big-ticket project. You can borrow a considerable amount of money at attractive rates that are often tax-deductible. But these loans aren’t always the ideal borrowing option for everyone. 

You may not have enough equity in your property or may not own a property at all. There could be several reasons why home equity loans may not be the right choice to fund your venture. 

But fret not, we’ve got you covered! Here are 5 alternatives to home equity loans that can help you bridge some financial gaps. 

What are home equity loans?

• Your equity in a property is the difference between its market value and the mortgage you have against it. In simple terms, it’s the portion of the property that you truly own. For instance, if the appraised value of your property is £200,000 and you have an outstanding balance of £75,000 in your mortgage, then own a share worth £125,000 in your home. To determine your equity percentage, divide this equity by the property’s value and multiply it by 100. See below:
• £125,000 / £200,000 = 0.625;
• 0.625 X 100 = 62.5
• So, considering the above example, your equity in the property is 62.5%. 
• Home equity loans enable you to borrow money against the equity that you hold in your property. These are secured loans that don’t require you to sell your property to raise money. People often use home equity loans to borrow a sizeable amount of money at lower interest rates. All you need to do is pay a fixed monthly instalment until the loan is paid off in full. You can use the proceeds to consolidate high-interest debts, finance a home improvement project or invest in your business. 
• However, it is crucial to understand the implications of missing repayments for home equity loans. If you fail to keep up with the repayments, you may risk losing your home, probably your only property. Lenders can seize and repossess your property in order to recuperate their loss. It is always better to assess your affordability before borrowing such loans. 

5 alternatives to home equity loans

Home equity loans a powerful financial tool to fund high-cost ventures or cope with financial emergencies, but this type of financing isn’t ideal for everybody. Here are 5 alternative financing methods that you can use instead of  home equity loans:

• Personal loans: Most loans are earmarked for particular purposes. A mortgage, for instance, helps you finance the purchase of a property, and an auto loan helps you buy a car. Personal loans, on the other hand, can solve a variety of purposes for you. You won’t need collateral to secure funds through an unsecured personal loan. However, the interest rates on a personal loan may be slightly higher than that of secured loans. You could work on improving your credit score to qualify for competitive rates and feasible loan terms. The typical loan term usually spans over 12 to 60 months, giving you the convenience and expediency of short-term finance. Plus, unlike credit cards, there’s no credit limit on personal loans. 

• Mortgage refinance: Mortgage refinancing or remortgaging allows you to replace your existing mortgage with a better deal. Demonstrated responsible credit behaviour over time by sincerely repaying your mortgage can boost your credit score. Besides, your financial circumstances may have improved over the period. You can refinance your mortgage to borrow a more significant amount at relatively lower interest rates in such a case. Before considering this option, assess your affordability and work up a plan to ensure timely repayments for your loan.
• Budgeting loans: If you’re low on income, a budgeting loan can help you sail through an urgent crisis. It is a loan that you can borrow from the Social Fund if you are claiming benefits. For those who satisfy the eligibility criteria, these loans can be cheaper than the high-cost short-term counterparts. The repayment period for these loans is usually 2 years. In case you’re claiming Universal Credit, you can opt for a budgeting advance instead of a budgeting loan. You can repay a budgeting advance with your Universal Credit payments within 12 months. 
• Authorized overdraft: You can arrange an authorized overdraft in advance. You and your bank account provider can mutually agree to a limit up to which you can spend money. Some banks also charge an additional fee on overdrafts, along with interest. This interest is high as it is, but if you use up credit beyond your limit, the bank may impose an exceedingly high interest. In addition to this, overusing your overdraft credit can hinder other financial activities – banks can start bouncing cheques. 
• Government grants: In light of the ongoing situation due to COVID-19, the government rolled out various grants and funds to mitigate the financial crisis of citizens. The Green Homes Grant is one such initiative. If you’re looking to make amendments to your property, you can now benefit from this scheme. On 8th July, Chancellor Rishi Sunak unveiled a £2 billion Green Homes Grant Scheme, which is part of a broader £3 billion renewable plan to help the country rebound from the COVID-19 pandemic. Homeowners and landlords can apply for vouchers from September that will cover nearly two-thirds of the cost of updating their property. 

A sum up

• We’ve all been through times where we’ve needed some extra financial help to sustain. If you’re in a similar situation, personal loans, mortgage refinances, or overdrafts are some credit options that you can rely upon. 
• All you need to do is figure out the option that best fits your needs. If you don’t own a property, you will have to resort to unsecured credit. If you’re a homeowner, you may be able to use a second mortgage. Regardless of the form of credit you choose, you must repay the dues as per the repayment schedule. Defaults can have severe consequences – you can get a CCJ or lose your property to foreclosure. It would be wise to draw up a repayment plan and adhere to it. 
• Financial circumstances are ever-shifting. Most times, we oscillate between a healthy and an unhealthy financial condition. But the key to finding balance is making an informed financial decision.