Economic principles teach us that human wants are limitless, while the resources available to meet those wants are limited. This explains why people are unable to afford some of the things that they desire or even need.
Thankfully, it is possible to still afford such things with a loan. However, credit lines need to be used wisely. This is given how people who do not use them wisely can quickly get themselves into debt traps.
Using it for refinancing purposes is one of the wise uses of credit lines. This is provided better terms are secured and it is properly serviced. The idea of refinancing loans entails taking out a new loan to pay a previous one or even consolidating previous debts.
Home equity loans can be a way to go when refinancing needs arise as will be discussed here in this article. So, read on to learn more about this kind of refinance loan.
Home Equity Loan Laws in Norway
There are some laws binding on individuals who would like to secure this kind of loan in Norway. Some of the laws include the following:
Property Ownership
Home equity refers to the portion or value of a property that you have. For example, imagine you took out a loan to buy a house and the debt amounts to 1 million Norwegian Kroner. If you have made payments totaling 700,000 Norwegian Kroner, this means that you have 70 percent home equity.
You are not the complete owner of the property as you have not paid all the mortgage debt. However, you own a sizable chunk of the property. As a result, you can take out this loan with what you already have. So, the implication is that you can only access this kind of credit line if you are a property owner and have equity.
Sufficient Equity
In addition to having home equity, you need to have a reasonable amount of it. This implies that securing this loan is not a certainty for every property owner. Having sufficient security, or sikkerhet as it is known in Norway, is a major requirement. This is what your home’s equity represents in this case.
Based on Norwegian laws as of the time of writing this article, the presented home equity must amount to 15 percent of the property’s market value, at the very least. But even this is considered the bare minimum by several lenders.
This is considering how more than this might be required especially when a huge amount of money is requested for. This is often the case when people need to take out this credit line for debt refinancing purposes.
Percentage Caps
The amount of money that can be secured using this credit line is greatly tied to the home equity’s value. Most lenders that offer it are not even likely to grant loan amounts exceeding 85 percent of the property’s value.
Credit Checks Are Mandatory
Some people might think that credit checks are not required because of the collateral involved. Well, this is not the case as credit checks are still conducted. For one, it is a requirement under Norwegian laws.
Some applicants even get turned down because they do not meet the eligibility criteria as it concerns credit status. However, it is safe to say that the applicant’s credit profile is not taken as seriously as it would be for unsecured loans.
It might also interest you to know that the borrower’s credit profile impacts loan conditions and terms. This is even though this type of loan generally offers improved terms than unsecured loans.
Benefits of Home Equity Loans
There are advantages to taking out home equity loans, especially for debt refinancing purposes. Some of the benefits include the following:
Debt Consolidation
Many Norwegians and people around the world have debt problems. One of the common reasons for this is taking out too many credit lines. As a result, borrowers can forget to make timely payments and have problems prioritizing certain loans over others.
This is why debt consolidation is important for such people. It implies combining all the debts for easier debt structuring and repayment. A refinance home equity loan can make debt consolidation a possibility.
Improved Terms
It is a secured loan. This means that it is only granted on the condition that borrowers present adequate collateral. In this case, the home equity is the collateral and you can get improved loan terms, especially if you present a reasonable amount of home equity.
Positive Impact on Credit Profile
The initial stages of taking out the loan can have a bad effect on your credit score. However, proper debt restructuring and servicing using this credit line will see your credit profile improve significantly.
This is important as a good credit rating presents you as more creditworthy. As a result, you will be better positioned to get additional and improved loan terms, as well as several other benefits. For example, some landlords will not admit people with bad credit ratings.
Easy Repayment Structure
Home equity loans usually have an easier repayment structure. This is especially true in terms of spreading payment for longer periods.
However, it should be known that longer repayments usually amount to higher loan costs. So, this might be a reason to opt for shorter repayment options. But you also have to consider convenience.
Increased Equity
You gain back equity as you gradually repay the loan. But in addition to this, the property’s value can appreciate over time and this also increases your home equity’s value.
Warning! Foreclosure Is a Possibility
There is no doubt that home equity loans are beneficial, especially for debt consolidation and refinance purposes. However, there is the possibility of foreclosure.
This means that the creditor can take full possession of your property if you fail to fulfill your loan obligations. This is why it should only be considered by people who are willing and able to fulfill these obligations.
Conclusion
Home equity loans are a viable way to refinance debt for Norwegians and people all over the world. One of its highlights is the possibility of getting very improved loan terms. However, there are laws and things to be considered before taking out this credit line. The whole point is to ensure that it is the right decision.
