Understanding The Home Equity Loan

Category: Finance, Mortgages.

It is almost as if lenders are really keen to advance home equity loans.

Don t worry, you are not the only home owner out there that has had to stop and ask exactly what a home equity loan is. Don t know what this is? These loans have actually become more common over the last 20 years or so. Understanding the Home Equity Loan. But if you have never needed one before there is no reason for you to know all of the logistics. A home equity loan is a tool to release the embedded equity in your owned home.

These loans are often taken out by homeowners that need to finance home repairs or remodeling, pay for unexpected medical bills, or even to pay for higher education. Another way to look at it is that the homeowner uses the equity in his or her home as collateral. Basically what this type of loan does is create a lien against the home and until it is paid off the actual equity in the home is reduced by the loan amount. These loans are reserved for those that are and have been in good standing with their mortgage company and also have excellent credit histories. There are several conditions that a borrower must satisfy before they become eligible for a home owner loan. The home equity loan is essentially a second mortgage because they are secured with the value of the home just as a first mortgage is. Fundamentally, loans on your home s equity are of two categories: open end home equity loans and closed end home equity loans.

Most of the time these loans are not as long term as a first mortgage, meaning they will need to be paid off before the first loan. Open end home equity loans are those that are referred to as a line of credit. These loans usually allow for the borrower to borrow 100% of the value of the home and can be made available for up to 30 years with a variable interest rate. With this type of loan the borrower can determine when and how they would like to borrow against the equity in the home. On the other hand you, can get a, the borrower fixed amount at the very first instance with the use of a close- ended loan. There can be different tenures, but 15 years is a common tenure for a close ended loan.

The amount that is given is figured by determining the value of the home, the income of the borrower, as well as the credit history. Just because you can potentially get a loan on the equity of your home does not make it a good idea. Lenders find it standard operating practice, but borrowers call is" hidden fees. " So make you understand the complete deal before getting a loan. Many times homeowners are able to secure a better interest rate on this type of loan than they are on a personal loan, making this a more affordable loan option.

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