If you have already applied for a personal loan and or else, you know how it’s hard to obtain cash in the time when you need it most, where the debt can pile up, but if you’re a homeowner it may be much easier than you think. A home equity loan allows you to take out a loan based on the cash value of your home you have already build up. Here’s what you will find out about; how do home equity loans work in your favour? For that; what you need to look forward to in order to get a good deal on a home equity loan.
How Do Home Equity Loans Work
A home equity loan is worth the amount of money that you now have invested in your house. For instance, if your house is worth $250,000 on the market, and you still have $155,000 on your existing mortgage, then you have an equity value of the difference – $95,000, in this case. That means that many lenders would be glad to give you a loan worth up to $95,000, as a second mortgage, or home equity loan.
Two Types Of Mortgages
When applying for a home equity loan, you will find there are two kinds of equity loans that you might get. The first kind called a home equity loan, simply gives you the money – like any other loan. You are free to use the money as you want. The other kind is called a home equity line of credit, often referred to as a HELOC. Both of these are also referred to as second mortgages since they are secured by the house itself.
General Home Equity Loan
A home equity loan or second mortgage usually is tax-deductible and is often based on the entire amount of the equity of the home. Generally, it is at a higher rate than the first mortgage, and usually has a maximum of 15 years to pay it back. Many homeowners use a balloon payment with this type of mortgage or a large payment that is due at the end, in order to keep their payments low.
Line Of Credit
This type of home equity mortgage gives to the homeowner a credit line that they are free to draw on – when needed. The ceiling amount is pre-approved by the lender, and then they are free to draw out money as they need it – or if they need it. Up to 100% of the equity value can be borrowed, and interest is only paid on the amount borrowed. The rate of interest, though, will vary, depending on what the rates are at the time you withdraw any money. These loans are generally held open for up to 30 years.
Like with any other loan, you need to take the time to shop around in order to ensure that you get the best deal. Not only should you compare interest rates, but also the various fees that are involved. Separate the actual loan from the fees and compare them to other loans – fee against fees and loan costs. Do not make the assumption that since the home equity loan has no closing costs, that they are not in there somewhere – they are. How do home equity loans work in your favour is a general concept that follows most of the financial system globally.