A home equity loan allows you to borrow money that is secured by the equity in your home. It is a type of revolving credit where your house serves as the collateral. The amount of equity in your home is determined by taking 80% of the current market value and subtracting any outstanding mortgage or other liens. With a home equity loan or line of credit, you are approved for a certain amount of credit. Interest rates on secured home equity loans are considerably lower than those available on an unsecured loan.
Secured home equity loans are normally issued at a fixed interest rate but may also be available as a adjustable rate or flexible rate loan. A fixed rate loan, with its interest rate set for the life of the loan, is the most desirable to have. With adjustable rate loans, your interest rate is determined by the constantly changing PLR (prime lending rate), and could go up considerably with no warning.
When determining your credit limit, your lending institution will also consider your ability to repay your loan by looking at your income, debts and other financial obligations, as well as your credit history. There are a number of fees that may apply to a home equity loan including application and appraisal fees, origination fees, title fees and arrangement fees. Be sure to read and understand all terms and conditions and ask questions if there is anything that you do not understand. You certainly do not want any surprises at your closing. You also have to realize that this loan is a “second tier loan” meaning that it is the second loan that uses your house as collateral (the primary one being your original mortgage). This means that if you default on EITHER the original mortgage OR the home equity loan, which is a second mortgage, the loan company could foreclose on your home. For this reason, you must be sure that you are financially able to meet your loan obligations.
With a secured home equity line of credit, many lenders will offer a variety of lending plans designed to meet varying needs. Many home equity line of credit plans set a fixed period during which you can borrow money, known as the “draw period”. During this time, you may withdraw funds up to your established credit limit. Some plans require that you borrow a minimum amount each time you draw on your line of credit and that you keep a minimum amount outstanding. Some plans also require that you take an initial advance when the line of credit is established. Usually, you will use special checks to draw on your line of credit. You will be required to make payments during the draw period, but usually much smaller payments are required than during the repayment period. At the end of the draw period, you will begin to repay the loan. During the repayment period, you may no longer withdraw any monies and your payments will be set in an amount sufficient to pay off the loan at or before the maturity date.
If you have owned your home for many years, you have most likely built up a lot of equity. This is one of the advantages of owning your home as opposed to renting. By using the equity that YOU have built up in your home, you will have available funds for such things as:
• College tuition for your children or grandchildren
• Improvements or additions to your home that may substantially increase its value
• New automobile or boat
• Consolidating high interest credit card loans
• Medical expenses
• Wedding
• Vacation
To find out how to secure the best home equity loans available, please fill out our free contact right now. Gain access top notch lenders right now. Don’t settle for less. Contact us today.
