What is a Home Equity Loan?
Home equity loans are much like other forms of loans except the fact that they are secured by a second mortgage on your home. Thus, in Home Equity Loan your home is used as the collateral to cover the risk of the lender. With a Home Equity Loan a set amount of money is loaned over a set period of Read More...
What is a Home Equity Loan?
(Continued) time, rather than a revolving credit line. Home equity is determined by deducting what you owe from what your house is worth. In general, you can borrow up to 85% of the market value of your home.
Benefits of home equity loan:
There are many advantages of getting a home equity loan.
- Low or competitive interest rates: As the loan is secured and default risk for lender is low, the interest rate on home equity loan is lower than any other unsecured loan such as credit card, personal loan, etc. However, in some cases, the interest rate is higher than that on a normal mortgage, as the home loan equity lender holds only the second mortgage and not the primary mortgage.
- Available with both fixed and adjustable interest rates.
- Tax deduction. Interest paid on home loan equity, in most cases, ca be used as a tax deduction.
- Maximum use of your investment in home. Home equity is a valuable asset and you can maximize benefits out of it without selling it.
Disadvantages of home equity loan:
There are some disadvantages associated with home equity loan.
- The biggest drawback of home equity loan is that if you can't keep up with the payments, your home may face foreclosure.
In addition, when you decrease your homes equity value, you also reduce the ownership you have in your property.
- Finally, aside from the interest you will pay on the home equity loan, there are also some costs associated with taking out a home equity loan that are similar to when you took out your first mortgage.
- In addition, because Home Equity Loan loans give you relatively easy access to cash, you might find yourself borrow money more freely.
What are the fees and other costs of home equity loan?
Along with the interest rate home equity loans come with certain costs. These costs could be: One-time upfront fees, Closing costs, Annual fees, Application fee, Title search fees, Appraisal fees and Attorneys' fees.
Do not worry about these costs too much, however, keep a close eye on them and understand them in detail. Ask lender many questions on them till you are absolutely satisfied. You can also negotiate with lender and ask the lender to bear some of these costs.
Is it possible to refinance a Home Equity Loan?
Yes it is absolutely possible to get refinance on a home equity loan. Refinance home equity loan is used to pay your existing mortgage by getting a secured loan. This is again called as second mortgage and your home is used as a collateral. There are many lenders who offer this option. The terms and the costs involved remain same as discussed above.
Are Home Equity Loans available to consumers with bad credit?
Absolutely! Home Equity loans are certainly available for people with bad credit history. You do not have to worry if you have poor or less than perfect credit history. Since the loan is secured by the second mortgage on your home, getting home equity loans with bad credit are much easier than other forms of unsecured loans
. Just as mortgages
are available for people like you, a home equity loan is also available. In fact this is an opportunity for you improve your credit history and get out of the bad credit world.
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