What Is A Home Equity Loan?

Paying down the initial mortgage on a home, in addition to doing improvements adds to the equity in a home. Equity is the value on a home that a person owns outright. This is money that can be borrowed by the homeowner for an assortment of uses. How does the bank figure the amount that can be borrowed, and what kinds of loans are available. A home equity loan is an attractive option for many people due to the fact that the loan has a low interest rate, and due to the tax reform act of 1986, the interest is tax deductible. A home equity loan is money that can be used for just about anything. Home improvement, education, debt consolidation, purchasing big-ticket items, or for unexpected big expenses such as medical bills. This money can also be used for paying off an existing mortgage. There are two different ways to receive a home equity loan. The first is the standard loan, which is a standard loan requiring payments monthly on the principal and interest on the amount. The payoff for this loan can vary from five to fifteen years, features a fixed interest rate, and uses the home as collateral. The second type of home equity loan is the home equity line of credit. This loan is a revolving credit loan that allows borrowing against the line of credit. The residence serves as collateral, and the credit line features a variable interest rate based on the prime rate. The credit line is open for ten years, with interest only payments for the first five years, and one percent of the balance for years six through ten. After this time period, the loan converts to a 15-year payoff. So how does someone get a general idea of the amount of equity that is available in his or her home? The easiest way is to take the estimated value of the home and multiply it by 80%. Take this total and subtract the total amount of the first mortgage balance, and this gives the amount that can be borrowed on a home equity loan. The minimum loan is $7500 and the maximum is $500,000. What are the considerations that one needs to look at before deciding what kind of home equity loan a person would need. Is the money needed in one-month lump sum, or would payments work? Should the payments remain the same, or is varying payments per month ok? How soon is the money required and how long needs to be given to pay it off? How much is a comfortable monthly payment? Home equity loans are a great deal for people needing to remodel their house, pay for education, make big purchases, or handling large bills. Shopping around for the best rates and fees is always a good idea, and researching to make sure the lender is reputable is advised.

Discuss It!

Most Popular Articles

More

Marketplace

Related Articles

More

Related Categories

More

Recently Added

More

Other Great Sites