Types of Home Equity Loans
Posted on May 15, 2008
Home equity loans are a way of using the money that you've invested in your mortgage by borrowing against it. Essentially, a home equity loan is a 'second mortgage' - a loan secured by your property. If you don't make good on your payments, the lending company or bank can force the sale of your house to recover their money.
There are two major types of home equity loans - home equity loans and home equity lines of credit, also called HELOCs. Most lenders that offer home equity loans offer both kinds. A home equity loan for $10,000 and a home equity line of credit for $10,000 are two completely different animals though they have a lot of similar features.
Home Equity Loan
If you apply for and are granted a home equity loan for $10,000 at 7% APR for 15 years, you will receive a check or a deposit to your bank account of $10,000. That is the full amount of the loan that you can ever draw on that particular application. Depending on the terms agreed upon, you may have one to several months before you have to begin repaying the loan. You'll pay a fixed amount every month until the full amount of the loan and the interest charge is paid off. You'll know from the very start how much you'll be repaying.
Home Equity Line of Credit
A home equity line of credit - a HELOC - is much more like a credit card. When you apply for and are granted a home equity line of credit, the bank establishes a 'line of credit' - which functions just the way that a 'credit limit' does on your credit card. You may receive special checks or a plastic card with which to access your line of credit - but you don't receive the full amount at one time.
In fact, you don't have to take any of it immediately. You can draw on the line of credit at any time, up to the full amount of the line of credit throughout the agreed-upon life of the loan. Suppose that you're doing some home repairs. You can use your home equity line of credit to pay for $2,000 worth of roofing tiles. That leaves you $8,000 in your line of credit. Three weeks later, you can use your line of credit to pay for $4,500 worth of windows - and still have $3,500 left that you can borrow against.
If you then start paying back on your home equity line of credit, that money becomes available to you again. If you pay back $1,000 of what you've borrowed, you now have $4,500 on your line of credit.
A home equity line of credit has two 'phases' - there is the draw period, during which time you can draw against the credit limit as long as you stay below the limit. During that time, you can elect to only pay the interest that accrues - or you can make payments on the principal to free it up. Once the draw period is over, you go into the repayment period. During the repayment period, you can't draw against the line of credit any longer, and must make full repayment.
Joseph Kenny is the webmaster of the loan information sites http://www.selectloans.co.uk/ and also http://www.ukpersonalloanstore.co.uk.
What Are Home Equity Loans?
A home equity loan is simply borrowing on the difference of the value of your home and the outstanding mortgage on the house. Lets say, you have bough...
Different Types Of Home Loans - 7 Different Types Of Home Loans
Are you looking for a home loan, but you are not sure which one is right for you? There are many different types of home loans and it can be very con...
Colorado Home Equity Loans
Home equity loans are considered secured loans. A home equity loan will both allow you to access your home's equity as a owner. A Home Equity Loan has...
Making Your Home A Better Place - Home Improvement Equity Loans
Everybody thinks of having a better place to live. A place with all the facilities, more than a normal home. Which will not only give you physical com...
An Introduction to Home Equity Loans
Whether you need money for medical bills, college, or home repairs, a home equity loan might be the right choice for you. A home equity loan is a loan...
Home Equity Loans - 5 Frequently Asked Questions
Home equity loans may be the best option if you are in dire need of a large amount of money.Home equity loans allow you to borrow money and your home ...
Home Equity Loans vs. Refinance Loans
To many people, there seems to be very little difference between a home equity loan and a refinance loan. However, there are some differences. You wil...
Why Home Equity Loans are Said To Be Advantageous?
Home equity loan is one of the most popular and affordable option of loan. Loan has become inevitable in the present circumstances. In the changed eco...
125% Home Equity Loans - Are These Loans Beneficial or Risky?
Home equity loans are beneficial for numerous reasons. If you own ahome, and need extra cash, obtaining a home equity loan will put cash inyour pocket...
California and Orange County Home Equity Loans
So you live in Orange County, California near to the Hollywood glitzy and glamorous world of the rich and famous. But you are an ordinary person looki...
Home Improvement Loans Explained
Home improvement loans are designed to help a homeowner make improvements to their home. They are specifically given to be used for home improvements...
125% Home Equity Loans
Home equity loans are second mortgages and involve borrowing money against a home's equity. In most cases, homeowners obtain loans that correspond wit...
100% Home Equity Loans - Is It Wise To Borrow 100% of Your Home’s Equity?
Home equity loans allow you to borrow money using your house as collateral. These types of loans can be a very useful source of credit when you need i...
Home Equity Loans Offer Options to Choose From
As the name suggests, home equity loans are loans that involves home equity as collateral. Home equity is the market value of the property in excess o...
Home Equity Loans Offer an Opportunity to Be Debt Free
Getting home equity loans are fairly easy nowadays. If you are paying high rate of interest on secured loans, home equity loans can be a worthy option...
» Filed Under
Refinance Home Loans