Equity Term Loan: Everything That You Need to Know

If you own a home or real estate, you can cash out your home’s value by applying for an equity term loan in Singapore. Even though an equity term loan approval can be a long and challenging process, it is possible. If you wish to finance your children’s education, renovate your home, or get capital for your business, the home equity loan can offer you a large sum to aid your requirements. This could potentially make equity term loans much better than opting for a long term loan or a short term loan in Singapore.

In this post, we’ll explain the meaning, interest rate and eligibility criteria of equity term loans.

The Meaning of Equity Term Loan

Also known as a home equity loan, you need to put the equity of your property as collateral in order to obtain this loan. The licensed moneylender or credit unions use an appraiser to find out the current value of the property. Whether your loan application is approved or not will depend on the value of your property. This is repeated for major causes such as medical emergencies, home renovation, children’s education, marriage and more.

Essentially, the lending institution you choose will raise funds and re-evaluate the current value of your property. With the help of the appraiser, the lenders determine how much of your property has increased in value since you purchased it. Even people who have yet to repay their home loan can opt for home equity loans by using the equity of your existing home as collateral.

Eligibility Requirements for Equity Home Loan

Only people who own a private home can qualify for the home equity loan. If you are living in an old HDB flat in Singapore, it could be difficult for you to take out a loan for your flat’s equity.

If you are living in an Executive Condominium and own this property, you need to wait for at least 5 years before being able to obtain the home equity loan. Moreover, only the lending institution you acquired the home loan from can provide you with the home equity loan. You will not be able to ask any other moneylender to approve of your home equity loan application if your home loan is still outstanding.

Interest Rate for Equity Term Loan

The best part about the equity loan is its low-interest rate. Unlike a short term loan or long term loanin, the interest rate of an equity loan can be as low as 1%. If you own a private property and need money urgently, there isn’t a better option to raise funds than obtaining home equity loans. This is because consolidation loans, home renovation loans, education loans, and even business term loans charge a high-interest rate.

Usually, the lending institution will lend around 70% to 80%of the total value of your property. However, the borrowers would need to deduct the due loans and any central funds, if used, for the property construction. Usually, lenders restrict the loan amount by the TDSR (Total Debt Servicing Ratio). According to this restriction, the loan amount given to the individual should not exceed 60% of their monthly income.  However, this limitation is lifted for the old and retired Singapore residents who want to cash out less than or equal to 50% of their property value.