Home Equity Loan Vs. Life Insurance Loan
Are you in need of financial assistance or even a little amount of money for some reason? Well, before engaging yourself into borrowing some amount to any banks or lending companies, you must have to take into account some factors and the money sources that may affect your money borrowing process. Primarily, these sources cover the home equity loans and the life insurance policy loans. They have relevant distinctions in terms of the advantages and perils of money lending.
Differences of Life Insurance Loan and Home Equity Loan in Terms of Collateral
Basically, collateral is something that you must surrender to the lending company or lender in case you lapse or do not pay your loan. Home equity and life insurance loans may differ in the collateral that they may have to require from you.
Home equity loan collateral
In a home equity loan, your home usually serves as the collateral. For some instance, you might probably lose your home once you fail to pay your existing loan. The policy in home equity loans is that you must have at least 30% equity in your home that will serve as collateral. However, in this type of loan, you can still be rejected even if your equity is sufficient.
This may depend on the lenders decision if your income is not enough or your credit-score reflects not so-good recordings.
Life insurance loan collateral
Meanwhile, in life insurance policy loan, the lender does not take away the insurance policy from you in situations that you fail to pay off the loan. And, even if you can’t pay the life insurance loan, you still have your house under your name. The requirement of a life insurance loan is the existence of a life insurance policy of the borrower that subsequently generates cash value. This cash value in your life insurance policy stands as your collateral in this loan type. Generally, a sufficient cash value on your life insurance policy means that you are not subject for rejection into a life insurance loan. But, the question with insurance is that is it smart to buy one as form of investment.
Costs of Loan
Loan computations for life insurance policy loans are not as complicated as with that of home equity loan. This is because loan terms do not apply in life insurance loans like dates and amounts of repayment. Unlike in home equity loans, you will have to pay for several fees similar with other mortgages. Although, house equity loan calculator is available to assist you in calculating for those fees.