Home Equity Loans

What is a home equity loan?

Home equity loan (also known as a second mortgage) is a type of loan, in which a borrower uses the equity of his home as security or collateral. The home equity referred here is the amount of the money you have already paid against the value of your home. The equity can be determined by subtracting the amount of the mortgage balance from the from fair market value of the home. Thus, the lesser mortgage balance you have, the higher your home equity will be.

Types of Home Equity Loans

Depending on your lifestyle and financial needs, you can have a home equity loan either in lump some or flexible amount. The options available are: closed-end home equity loan and home equity line of credit, or HELOC.

Home equity

Closed end home equity loan
This option provides borrower’s a single, lump-sum payment, which will be repaid over a set period of time at a fixed interest rate. The borrower cannot borrow further until the first loan is paid.

Home equity line of credit
Under this option, borrowers can choose when and how often to borrow. This is because the loan work much like a credit card, in which borrowers are given a certain spending limit that they withdraw via a credit card or special checks. The monthly payment will be based on the amount of money borrowed plus the accrued interest.

How and when to use a home equity loan?

A home equity loan can be a valuable financial tool. For responsible borrowers with steady and stable income flow, applying for a HEL will be easier. The financing you can get from this loan can be used in different activities and expenses including the following:

Home improvements and renovation
Debt consolidation
College education
Purchase of a second home