Quick Guide to Home Equity Loans

Quick Guide to Home Equity Loans

Quick Guide to Home Equity Loans

A frequent query posed by potential borrowers asking about a home equity loan is: "Are second mortgages and home equity loans the same?" The answer is yes, they are, unless the loan is in the form of a line of credit.

This is a type of loan that provides the borrower with a lump sum amount which is then scheduled to be paid back over a predetermined period of time at a fixed or variable rate of interest. The result is an equated monthly installment that has to be paid on a monthly basis. If you sell your home before the repayment term is over, you would have to pay back the outstanding balance in one shot.

What it is used for?

A home equity loan lets you borrow cash using your property as collateral. It is in effect a second mortgage that allows you to convert your property's equity into cash. You can use this to meet different expenses and pay off outstanding debt. These can include needs such as a wedding in the family, costs of your children's college education, home improvement projects, debt consolidation on your credit cards, or other similar large expenses. Payments on such a loan are tax-deductible. These loans are relatively easy to qualify for even if you have poor credit.

When the Federal Reserve lowers interest rates, many homeowners take advantage of the situation to refinance their existing loans. In the event of an interest rate hike on the other hand, the tendency among borrowers is to productively cash out with a second mortgage.

Types of debt

Home equity lines of credit (HELOC) and home equity loans are the two kinds of debt products offered to the second mortgage loan consumer. As both of these offerings are secured against your property, just as the primary or first mortgage is, they are both technically second mortgages.

Repayment terms

The repayment period for a home equity loan is typically shorter than that of first mortgages. A second mortgage's period of repayment can be anywhere from five years to as long as 30 years. The rates of interest are available in various options: variable, fixed, and hybrid. The monthly installments are calculated based on the interest rate in the economy in case of variable rates.

Whom to contact

The choice of a second mortgage is an extremely important decision. A lot of alternatives with regard to lending agencies, rates, repayment options etc have to be researched and evaluated before making the final decision. You may find it useful to consult with a professional loan specialist to assist you with your needs. Another good alternative would be to use a mortgage calculator to help you with your choice. There are several excellent websites offering online mortgage calculators for potential loan consumers.

Understanding the concept of the home equity loan product and applying for one can seem a bit overwhelming to the first time loan consumer. With diligent research, you can get a suitable loan and make good use of the equity built up in your home.

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