A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. These loans are sometimes useful for families to help finance major home repairs, medical bills or college education. A home equity loan creates a lienagainst the borrower's house.
Home equity loans are most commonly second position liens (second trust deed), although they can be held in first or, less commonly, third position. Most home equity loans require good to excellent credit history, and reasonable loan-to-value and combined loan-to-value ratios. Home equity loans come in two types, closed end and open end.
Both are usually referred to as second mortgages, because they are secured against the value of the property, just like a traditional mortgage. Home equity loans and lines of credit are usually, but not always, for a shorter term than first mortgages. In the United States, it is sometimes possible to deduct home equity loan interest on one's personal income taxes.
A home equity loan allows you as a homeowner to get a loan by using the equity in your home as collateral. The equity consists of whatever funds you have invested in your property in order to own it or improve it.
Since it is a debt against your own property, which you are in actual possession of, a home equity loan is a secured debt. The property can be required to be sold if the creditor wants the money back that you have borrowed.
Home equity loan vs. Home equity line of credit
A home equity loan can be obtained in a lump sum or used as a revolving home equity line of credit.
A home equity loan can be either of the following:
A homeowner who requires more money in large amounts usually applies for a home equity loan. Some expenses that make a home equity loan useful are:
- Debt consolidation
- Home repairs
- Medical bills
- College tuition for family members
A home equity loan is also beneficial because the home equity loan rate charged is usually tax deductible, as the loan is used for its primary functions. You can use our home equity loan calculator to check what various home equity loan rates will mean for your monthly payments. Always compare offers from several lenders and brokers to obtain the lowest home equity rate possible.
More information on home equity loans and rates
If you would like more information on home equity loan rates, and how to find the best home equity loan, please fill out the form above! Home equity loan specialists will get in touch with you to consider your options and see how a home equity loan can help you make the most of what you have.
There are several choices available for homeowners to free up the equity they possess in their homes.
