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A home equity loan (or line
of credit) is a second mortgage that lets you turn equity into cash, allowing you to spend it on home improvements,
debt consolidation, college education or other expenses.
Equity loans, lines of credit defined ...
There are two types of home equity debt: home equity
loans and home equity lines of credit, also known as HELOCs. Both are sometimes referred to as second mortgages, because they
are secured by your property, just like the original, or primary, mortgage.
Home equity
loans and lines of credit usually are repaid in a shorter period than first mortgages. Most commonly, mortgages are set
up to be repaid over 30 years. Equity loans and lines of credit often have a repayment period of 15 years, although it might
be as short as five and as long as 30 years.
Equity is the difference between how much the home is worth and how much
you owe on the mortgage (or mortgages, if you have more than one on the property)
Collateral is property that you pledge as a guarantee that you will repay a
debt. If you don't repay the debt, the lender can take your collateral and sell it to get its money back. With a home equity
loan or line of credit, you pledge your home as collateral. You can lose the home and be forced to move out if you don't repay
the debt.
Equity loan Tips- you should know:
1. What is the interest rate on the
home equity loan?
2. What are the upfront closing costs?
3. Is a home equity credit line for
you?
4. What are the repayment terms during the loan?
5. How much money can you borrow on a home equity credit line?
6.
What are the continuing costs?
7. What are the repayment terms during the loan?
8. What safeguards are built into the
loan?
Tax
benefits of home equity loans:
A home equity loan is also beneficial because the home equity loan rate charged is usually
tax deductible, as the loan is used for its primary functions. You can use a home equity loan calculator to check what various
home equity loan rates will mean for your monthly payments.
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