All About Home Equity Loans

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Equity is the optimum word in home equity loan. What you have left is the equity once you have started with the fair market value of a home, subtract the mortgages (first and second) and any liens against the property. In order to secure cash in the form of a loan or a mortgage, this equity can then be used as collateral.

The amount borrowed is based on a percentage of the appraised value of the home. When it comes to the percentage rate, it can vary from 75% to 125%. Also varying is the length of the financing. Fixed rate loans and adjustable rate loans are the two main types of home equity loans.

What is fixed rate loan? It is repayable over the life of the loan and it also provides a fixed amount of money at a fixed rate of interest. Fixed rate financing costs more in set-up fees and comes at higher interest than adjustable rate loans. But homeowners will save money over a comparable adjustable rate loan if they stay put and interest rates go up.

What is adjustable rate loan? Going up or down according to the index upon which it is based is the interest rate. Adjustable rate loans will have a cap on how high the interest rate can go. Usually called ARMs (Adjustable Rate Mortgages), this type of loan has lower up-front costs and starts at a lower interest rate than fixed rate financing. Lower initial monthly payments is what this means.

How to put home equity to good use. The top ten reasons for getting a home equity loan are.

Vacation Medical expenses c) Business expenses d) Household expenditures 5. Investment Major purchase 7. Education expenses 8. Automobile purchase Home improvement Debt consolidation

The most popular reason people cash out their home equity is because of debt consolidation and it is also a smart form of financing because of the money it can save. One example would be owing about $15,000 on a credit card that charges 17% interest. As long as you are able to get a debt consolidation loan at 9% interest and pay it off in five years, then you will save over $30,000.

If your APR is 15% then you should get a debt consolidation loan. The best terms could drop your monthly payments by 35% – 50%, depending on interest rates, origination costs and tax consequences

It can be a good way to make a fresh start.

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Topics: Loans | Comments Off

Tags: banking, Credit, Debt Consolidation, Debt Relief, Finance, finance and banking, Finance and Credit, Finance and Loans, financial planning, Loans, Mortgages ad Finance, Personal Finance, Wealth Building

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MLA Style Citation:
Rowe, Benjamin "All About Home Equity Loans." All About Home Equity Loans. 6 Feb. 2012. uberarticles.com. 17 Apr 2012 <http://uberarticles.com/finance/loans/all-about-home-equity-loans/>.

APA Style Citation:
Rowe, B (2012, February 6). All About Home Equity Loans. Retrieved April 17, 2012, from http://uberarticles.com/finance/loans/all-about-home-equity-loans/

Chicago Style Citation:
Rowe, Benjamin "All About Home Equity Loans" uberarticles.com. http://uberarticles.com/finance/loans/all-about-home-equity-loans/

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