Many people consider collateralizing a loan with a property , especially in times of crisis or when they are going through difficult economic situations, such as unemployment . These are times when money is needed more than ever and yet banks do not want to grant loans due to lack of regular income.
What to do then, how to access credit ? Well, there is an option and it is through a loan with a property, or loan with mortgage guarantee , for which we only need -in principle- to own a property. However, this type of product carries significant risks . Do you want to know what they are, and how to access this type of credit? Read on to find out all about it.
What is a home equity loan?
Any entity or company that offers a loan for a significant sum seeks to have the maximum possible guarantees, not only that they will recover their money, but also that they will receive the interest specified in exchange. This is where the mortgage loan comes in – not to be confused with the mortgage loan , which is requested to buy a home – in which a property is used as collateral or guarantee of payment.
Unlike the mortgage loan, in the loan with a property as collateral, the purpose for which the money is destined does not have to be to acquire a home, and may have any other destination; yes, the property with which we guarantee the operation must be in our name .
It is a good option if we have, for example, a seizure order and we need to quickly access credit to pay our debts; It is also very useful to reunify our debts , or for cases such as when we must pay the inheritance and donation tax before the inheritance of a property, since we can use the inherited property itself as collateral for the loan that we need.
Normally these credits are granted by private financial companies and they do not ask about the purpose of the loan; There are banks that also offer these loans and at a lower interest rate, although they usually require more requirements in return and have other products contracted with the bank.
How much can they give me if I endorse a loan with my home?
Although it is a more accessible credit route, logically it is also limited. The maximum amount of the loan that we can request with a mortgage guarantee loan is calculated based on the appraised value of the property , and if a mortgage weighs on it, the amount is reduced.
Even so, usually the financiers that grant this type of credit do not give more than 40% or 50% of the appraised value of the property, to which the pending mortgage or any other burden that weighs on the property must be subtracted. Also, if 70-80% of the mortgage has not been paid, the loan is rarely approved.
Factors to consider in the appraisal
There are also a series of factors to take into account in the appraisal of the property with which we will guarantee this type of loan, and which are decisive in knowing how much money we will have. Some of them are:
- The time that the property has: the value of the house decreases over the years, and it also influences whether it has been reformed or not.
- The location of the property is also decisive, since a property in the center or on the outskirts, or near the capital or in a province, is not the same.
- The market also has an influence, and depending on the economic situation, our property may receive a higher or lower appraisal.
Requirements to obtain a loan guaranteeing a property.
Despite these limitations, it is true that these types of loans offer an easy and accessible line of credit in complicated situations – as long as we have almost paid off our mortgage – since the requirements are very simple.
In general, it is only required to be of legal age and to have a property of our property without charges or with little pending mortgage . The amount of the loan, depending on the appraisal and other factors that we have already seen, usually ranges between 5,000 and 300,000 euros , to be repaid up to a maximum term of 20 years.
In addition, the property that we offer does not have to be a home equity loan ; it can also be a commercial basement or an industrial warehouse, since the important thing is its value. Depending on the financial entity in question, it can also accept other guarantees that are not real estate, such as works of art .
What documentation do I need?
As for the necessary documentation, it is also simple and is limited to:
- An identity document ( DNI, or NIE if we do not have Spanish nationality)
- A recent appraisal of the property that is provided as collateral.
- The last IBI receipt .
- A registry verification (or simple note ).
What are the drawbacks of using a property to guarantee a loan?
- They are quick and easy loans but also with very high interest rates that can reach 20%, so they can make us get even more indebted. This is so because the entity assumes a very large risk by offering the credit.
- The loan offered rarely exceeds 40% of the appraised value of the property, so in reality we will only have access to a limited amount of money that is not even equivalent to the majority of the property that we present as collateral.
- To this we must add that in case of non- payment , the entity that granted you the loan keeps all the property, initiating a judicial process and an embargo .
In summary, collateralizing a loan with a property is something accessible to many customer profiles who otherwise would not have access to credit ; however, it is important to seek good advice and carefully weigh the drawbacks , since even if it is a product to resort to in emergency situations or as a last resort , there is a very high risk of losing our home or any other property.