Looking for a loan that will give maximized benefits on pledging your home as collateral? Home equity loans are the perfect opportunity that you may be looking for. With home equity loans, you can borrow an amount that is equal to the equity in your home. Equity is the market value of your home minus the pending mortgages on your home.
Home equity loans can be borrowed for any purpose like home improvement, car purchase, funding college education, clearing medical bills etc.
Since home equity loans involve keeping your home as collateral, these are secured loans borrowed for a longer term of repayment. On the basis of how the money is wished to be withdrawn, as a lump sum or in parts as and when the need arises, there are two categories of home equity loans.
The first category is closed end home equity loans which involve the borrowing of money as a lump sum. After this has been done, the borrower cannot borrow any further amount. The maximum amount of money that can be borrowed is determined by factors like credit history, income, and the appraised value of the collateral, among others.
The other category is open end home equity loans. This option is more of a line of credit and is thus called home equity line of credit or HELOC. It involves borrowing money in parts according to the need of the borrower. This borrowing of money extends to a certain amount and time period that has been initially fixed by the lender. This HELOC is more than just a one time loan and can be highly beneficial to the borrower.
Online search for home equity loans can reap more than usual benefits. A low rate of interest can be obtained by thorough research and comparison of quotes. Also the process of approval is speeded up due to online application.
Home equity loans can prove to the best way of borrowing money if you are opting for the secured loans option. A higher equity will fetch more money as a loan and a lower rate of interest to fulfill your needs.
By: Meghna Arora
Posts Tagged ‘Home Improvement’
Home Equity Loans: Borrow Money the Secured Way
October 10th, 2009Home Equity Loan – Understanding the Basics and Advantages
October 2nd, 2009You may have heard the term home equity loan but are not really sure whether this type of loan will work for you. The first step is to understand the concept of home equity. Equity is the difference between the current appraised value of your home and the amount that is owed on the home. So, for example; if your home has recently appraised for $200,000 and you only owe $100,000 on it then you have $100,000 in equity in your home.
Many homeowners like the idea of taking out a home equity loan when they need to fund a home improvement or make some other type of purchase because they can often obtain the money they need at an interest rate that is lower than charging it to a credit card. In addition, there are also possible tax advantages as well.
When you take out a home equity loan you are taking out a second mortgage that gives you the ability to convert the equity in your home into cash. You can then spend that cash on any number of expenses including college education, medical expenses, debt consolidation, home improvements and much more.
You will generally need to decide whether you wish to take out a home equity loan or a home equity line of credit. These two terms are different. A home equity loan provides you with a one time lump sum of money that you will then pay off over a specified period of time at an interest rate that is fixed. It is much like your first mortgage.
A home equity line of credit, commonly referred to as HELOC, is more similar to a credit card. Instead of receiving the sum of money at one time, you will then have the ability to borrow up to a specified amount of money for the duration of the loan. That time period is set by the lender. As you pay off the principal amount of the loan, you can once again use the credit. In this regard, a HELOC is much like a credit card.
There are advantages to both a home equity loan as well as a HELOC. Many homeowners prefer the flexibility of a line of credit over a fixed rate equity loan. If they do not need all of the money up front, they are able to maintain control over how much money they draw down from the loan. The disadvantage to a line of credit is that it frequently features an interest rate that is variable. This means that the payment amounts will vary based on the prevailing interest rate.
In most cases, the draw period for a line of credit is between five and ten years while the repayment period ranges between ten and fifteen years. You will usually be able to access the funds of a line of credit with a credit card, check or electronic transfer that can be ordered by phone. Typically, an initial advance is required when the loan is set up.
By: Alan Lim
