Equity Loans What You Need To Know

In various forms is how home equity loans are offered as and this includes credit lines

. An equity loan is offered in one large sum to the borrower, often used to pay off debts, reduce interest on credit card debts, pay tuition fees or for remodeling the home. For a number of years, a credit line can be offered, often in amounts limited by the lender allows the borrower to use the credit for any purpose. As repayments are made, the line of credit opens up again and the borrower can withdraw funds for a different purpose.

Usually calculated at the Prime rate is the interest on credit lines and they're not based on fixed intervals. Higher interest rates could be paid unlike with a home equity loan. Providing more protection to the borrower are home equity loans and they're often at a fixed interest rate.

Calculated based on your home's equity is an equity loan. If your home is not worth the amount you have applied to borrow, you may pay higher interest rates and therefore higher repayments. This is considered a higher risk and is called negative equity. Equity is determined by current market value, and an evaluation from a surveyor may be required before applying for the loan.

The lender wants to be assured that repayments can be made which is why a home equity loan also takes into consideration the borrower's salary. There are lenders who are less strict on these factors but still, before considering a home equity loan, it's important that the borrower is sure they can cover the repayments.

Requiring a 5-10% deposit is your home equity loan which can also help in mortgage payments and reducing interest rates. Even though a 100% loan will incorporate all costs including additional fees involved in the purchase of a home, an equity loan is intended to pay off your first mortgage. These loans include the deposit, therefore you do not have to have available cash. Also higher on 100% loans is the interest rate.

Before considering a credit line or home equity loan, you first need to consider which type of loan will best suit your ability to repay the loan and find out from lenders what the benefits and disadvantages are. Different loan packages with varying interest rates and other benefits are offered by different financial institutions. Before signing on the dotted line, shop around and make sure you get the best deal.

by: Jenny Dickson

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