Home Equity Loan Information

Home Equity Loan Information
Home equity is basically the difference between your home’s current value and the outstanding mortgage balance you owe on your home. Nowadays borrowing money against built up home equity is extremely popular. Reasons for this are the tax deductions and the low interest rates for home equity loans on the current mortgage loans market. Another thing is the growth of equity in most people’s homes.

For example let’s say you’ve bought a house for $100,000 with a down payment of $20,000 and paid $10,000 towards the principal. In this case you will have $30,000 in home equity. Above that, if your home has increased in value by $20,000, for example, your equity is going to be $50,000 ($30,000 + $20,000).

Home equity is a very valuable thing since you can use it to borrow money without selling your house. Many people use it to pay off their credit card debts or to make home improvements. Banks consider this type of loan rather secured so you can count on lower rates. Another thing is that the interest on this type of loan is tax deductible.

There are two basic types of home equity loans. The first one is a term or closed end loan and the second is basically a line of credit. They are also referred as a second mortgage loans because they are secured against your home just like your first mortgage. Payback period of these loans is usually between 5 and 15 years.

A home equity loan line of credit gives you more flexibility than a term home equity loan. It works more like a credit card. You are allowed to borrow a certain amount of money to spend on whatever you are interested in. As you pay off the principal your credit revolves and you can borrow again.

The decision on what type of home equity loan suites you the most is up to you. It depends on things like how much money will you need, how long will you need the money for, how long will you need to pay the loan off and how much of a monthly payment can you afford. The thing you should remember on home equity loan is that if you fail to make your payments on it the bank can foreclose your house, which is far from pleasant thing to happen. Use maximum caution if you decided to apply for it.

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