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Home Equity Loan Facts 101

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  • Home Equity Loan Facts 101

    A home equity loan might be an outstanding way for you to consolidate debt or pay for major expenses. You will be able to benefit from the security of a set repayment schedule, fixed-rate payments on principal and interest for the life of the loan, and potential tax advantages.So if you're a resident in need of money, and have stored up equity in your property, this may be the loan for you. You'll have the capacity to quickly convert your homes equity into a lump sum of cash in your pocket.

    Home Equity loans are referred to as a term loan or second mortgages because they are subordinate to your primary mortgage. If you can't afford to make your mortgage payments and subsequently default, the first mortgage gets paid off first from any profits of a sale. Because of this, there is much more risk for lenders who give you the loan. Consumers should always understand that with an equity loan the property owner is essentially putting your property up as collateral. This means that if you default the bank is eligible to take your home. But in most cases if you find yourself in this predicament, your lender may have two other choices: work with you on a forbearance plan, or arrange a settlement.

    Individuals elect to make use of their home equity because loan rates are noticeably lower then other types of borrowing, like the high lending rates on credit cards and even personal loans. There are also great tax advantages connected with these types of loans, since the interest on the loan may be tax deductible (within certain limitations). Yet another reason that home equity loans are appealing is that closing costs are pretty low and there is a speedy loan process.

    Just How Much Can You Borrow? When considering the amount to barrow you will need to consider what amount of equity that you have in your current mortgage, because with the money you will be borrowing is against the homes equity. The homes equity is the difference between what amount you owe on your home and how much your home is worth. In most cases you will be capable of borrowing up to 80 % of your homes available equity. For instance if you have accumulated $100,000 you may be entitled for up to $80,000.

    What Can I Use A Home Equity Loan For? There are no clauses on how you must use the funds you get out of the loan. Many people use the money for their children's college, home repairs or improvements. Some individuals will use this money to pay off high interest credit cards since these loans will have a much lower rate than the typical credit card.

    Just how does it work? Generally there are two types of second mortgages the home equity line of credit, which is also referred to as a HELOC, and the home equity loan, which is also called a HEL. Unlike the Home equity line of credit that works like a credit card the home equity loan can disburse your funds in one lump sum. In most cases the term on your loan may be a 15-30 year term but the interest is typically a fixed rate. Many are enticed to these two loan types since the process is actually much quicker than the regular loan process.

    Why Look At A HELOC Loan? Just like any other product or service you should often shop around to find the very best rates and mortgage expert for you, consider talking with a tax professional as well to ensure you receive the most out of your loan by reviewing any tax advantages that you may qualify for.

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