A home is the most important asset that is available to any homeowner for it not only proves it a shelter but also serves as a great source of income that earns you instant liquid cash. Putting your precious home as collateral against any of the loans you take involves the biggest risk and that is of losing your home. Lenders will not even once think and confiscate your property if you exhibit signs of failure towards repayments of home mortgage loans on a regular basis till 60-90 days. Home equity loan is an amazingly lucrative scheme that has been introduced into the housing finance market that not only saves your home – your most precious asset from liquidating but also stays instrumental in increasing the home’s market value on a regular basis. Moreover, home equity line of credit provides you security of not losing your home against mortgage loan liquidation. Let us throw some light on what home equity loans are; what home equity loan rates are available across the market and what are benefits of home equity loan.
What is a Home Equity Loan?
A home equity loan creates a lien against the borrower’s house, and reduces actual home equity. As the property appreciates over time, it gets extra potential and can be obtained from the loan provider by applying for a Home Equity Line of Credit (HELOC). Home equity loans are most commonly second position liens (second trust deed), although they can be held in first or, less commonly, third position. Most home equity loans require good to excellent credit history, and reasonable loan-to-value and combined loan-to-value ratios.
Home equity loans come in two types: 1. Closed End and 2. Open End.
Both are usually referred to as second mortgages, because they are secured against the value of the property, just like a traditional mortgage. Home equity lines of credit and home equity loans are usually, but not always, for a shorter term than first mortgages. In the United States, it is sometimes possible to deduct home equity loan interest on one’s personal income taxes.
How to Apply for Home Equity Loan?
Now there is a fixed amount that is determined for home equity loan which is dictated by several factors.The affecting factors are: –
1. The current worth of your home
2. 2 Standing payable amount to the bank
The exact value is a difference between the two. For instance, your home is currently worth $ 100,000 and your standing overall payable amount is $ 75,000; the loan that you can apply for is $ 25,000. It is however important to note that the amount for your home equity loan is very likely to be subjected to the annual percentage rate on the credit, which is usually chosen by the lender and banks. So basically you are eligible for 70-80% of the difference. Make sure you keep your credits clean since it is a major factor that is likely to affect the same amount you get for home equity loan.
The Clear Distinction between HEL and HELOC
There is a clear and specific difference between a home equity loan and a home equity line of credit (HELOC). A HELOC is a line of revolving credit with an adjustable interest rate whereas a home equity loan is a onetime lump-sum loan, often with a fixed interest rate. This is a revolving credit loan, also referred to as a home equity line of credit, where the borrower can choose when and how often to borrow against the equity in the property, with the lender setting an initial limit to the credit line based on criteria similar to those used for closed-end loans. Like the closed-end loan, it may be possible to borrow up to 100% of the value of a home, less any liens. These lines of credit are available up to 30 years, usually at a variable interest rate. The minimum monthly payment can be as low as only the interest that is due.