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Home Equity Loan Information
The Home Equity Loan information below will help you understand home equity loans and how you can get a low rate home equity loan for yourself.
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What is Home Equity Loan?
A home equity loan (HEL) allows the borrower to use the equity in their home as collateral to borrow money. Home equity loans can be used for financing home renovations, medical bills, education or any other expenses. A home equity loan creates a claim against the borrower's house, and reduces actual home equity.
There are two types of home equity loans, 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. |
Closed End Home Equity Loans:
A closed end home equity loan (also known as Home Equity Loan) is a one-time lump sum that is paid off over a set amount of time, with a fixed interest rate and the same payments each month. Once you get the money, you cannot borrow further from the loan.
The amount you can borrow depends upon your credit history, income, and the appraised value of the collateral. It is common to be able to borrow up to 100% of the appraised value of the home, less any liens. In simple terms, closed end means there will be an end date for the loan. You can’t borrow any further from the loan till the time loan is paid.
Open End Home Equity Loans or Home Equity Line of Credit:
A Home Equity Line Of Credit (HELOC) is a revolving credit loan, which works like a credit card. A HELOC allows you to borrow up to a certain amount for the life of the loan -- a time limit set by the lender. The borrower can choose when and how often to borrow against the equity in the property. During that time, you can withdraw money, as you need it. As you pay off the principal, you can use the credit again, like a credit card.
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Difference Between a Home Equity Loan and a Home Equity Line of Credit (HELOC):
A HELOC is a line of revolving credit with a variable interest rate whereas a home equity loan is a one-time lump-sum loan, with a fixed interest rate. Open end home equity loans and lines of credit often have a repayment period of 15 years, although it might be as short as five and as long as 30 years.
Always remember, with either a home equity loan or a line of credit, you have to pay off the balance when you sell the house.
Home Equity Loan Fees
Below is a concise list of likely fees that may apply to home equity loan:
Appraisal fees
Originator fees
Title fees
Stamp duties
Arrangement fees
Closing fees
Surveyor and conveyor or valuation fees
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