Home Equity Loan / Line of Credit
A home equity loan, also known as a second mortgage, is a type of loan that allows homeowners to borrow money against the equity they have built up in their homes. The equity in a home is the difference between the home's market value and the outstanding balance on any existing mortgages or liens.
Here are some key points to know about home equity loans:
Purpose: Home equity loans are typically used for major expenses, such as home renovations, debt consolidation, education expenses, medical bills, or other large purchases. The loan provides a lump sum of money upfront, which is repaid over a fixed term.
Loan Amount: The loan amount is determined by the equity in the home. Lenders usually allow borrowers to access up to 80% to 90% of the appraised value of their home, minus the remaining mortgage balance.
Fixed Interest Rates: Home equity loans generally have fixed interest rates, meaning the interest rate remains the same throughout the loan term. This can provide stability and predictability for borrowers, as the monthly payments remain consistent.
Repayment Terms: Home equity loans typically have a fixed repayment term, ranging from 5 to 30 years. The borrower makes regular monthly payments over the agreed-upon term until the loan is fully repaid. It's important to note that the loan term may affect the interest rate, with longer terms often resulting in higher rates.
Home Equity Line of Credit (HELOC): Another option is a home equity line of credit, which works more like a credit card. With a HELOC, you're given a credit limit, and you can borrow from it as needed. You pay interest only on the amount borrowed. This provides flexibility, but the interest rates may be variable.
