Home Equity Loans

A home equity loan is a type of loan in which the borrower uses the equity in his home as collateral. Home equity loans work much like first mortgages. These loans are sometimes useful for families to help finance major home repairs, medical bills or college educations.

Home Equity Loan [How much I can borrow?]
The maximum amount of money that can be borrowed as home equity loan is determined by various variables, including credit history, income, and the appraised value of the collateral, among others. It is common to be able to borrow up to 100% of the appraised value of the home, less any liens, although there are lenders that will go above 100% when doing over-equity loans.

How about Rates for Home Equity Loans?
Home equity loans generally have fixed rates and can be amortized for periods usually up to 15 to 20 years. Some home equity loans offer reduced amortization at the end of the term, with a ‘bloon payment’.

What is the difference: Home Equity Loan vs. Home Equity Line of Credit?
While Home equity loans (HEL) works much like regular second mortgage, Home Equity Lines of Credit (HELOC) is a form of revolving credit similar to a credit card. It allows you to draw funds, up to a predetermined limit, whenever you need money. There is generally a minimum payment due each month, with the option to pay off as much of the line as you want. With a home equity loan, you receive a lump sum of money and have a fixed monthly payment that you pay off over a predetermined time period.

Benefits of Home Equity Loan and Home Equity Line of Credit
The appeal of both of these types of loans is their interest rates, which are historically lower than those of credit cards or conventional bank loans because they are secured against your home. In addition, the interest you pay on a home equity line or loan is often tax deductible (consult a tax advisor about your particular situation).

Which is best for you?
Generally, a HELOC is a good choice to meet ongoing cash needs. A home equity loan (HEL) is more suitable when you need money for a specific, one-time purpose.

Comparison Chart

	Home Equity Loans (HEL)	Home Equity Line of Credit (HELOC)
What you are getting?	A fixed amount of money, up to 100 percent of your equity in your home (its value minus your first mortgage debt and other debts). Some lenders will allow you to borrow up to 125 percent of the value of your home.	Revolving credit, with a specific credit limit of up to 100 percent of the value of your home value minus all debts against it. Some lenders may allow you to borrow up to 125 percent of the value of your home.
Qualification	You typically need to provide proof of your income, home ownership, your mortgage and how much equity you have in your home. An appraisal is usually required.	You need to provide proof of your income and home ownership, and proof that at least 20 percent of the value of your home is paid off. An appraisal is usually required..
Terms	Any where from one year to 30 year.	Usually, you have a 10- to 20-year period when you can draw funds from "line of credit", after which you have a fixed period to pay off the outstanding balance plus interest.
Payments	Fixed payments of interest and principal over a fixed period of time.	Minimum payments each month; eventually you have to repay the entire sum borrowed plus interest.
Costs and fees	There will be closing cost similar but lower than for a first mortgage	Usually no closing costs, but may have an annual fee.
How you receive the funds?	You receive one time lump sum.	You draw funds as needed, using special checks or a credit card.
Interest Rate	A fixed or adjustable interest rate.	The prime interest rate plus a margin (which can vary from one lender to another)

Categories

Home Refinance

Equity Line of Credit

Home Equity Loans

Comparison Chart

Home Equity Loans (HEL)

Home Equity Line of Credit (HELOC)