Home Equity loan also known as HEL is a type of loan in which a borrower borrows money from the lender, by the equity one has in his home. This home equity serves as collateral. Home equity loans are also termed as second mortgage and are a great means of arranging fast money. Home equity loans can be around $100,000 and can serve as a good means for clearing off one’s debt, house renovation costs as well college education.
Before opting for a home equity loan one should complete the market analysis as to which institution is providing the lowest interest rates. This can be done online. Once this is done one should make an estimation of his needs and should get it clear about the rates, processing fees etc. After this one should focus on his credit score and make a decision as to whether he can repay off the loan? The current interest rates are-
Home equity loans are of two types- closed end and open end. These are also termed as fixed rate home equity loans and line of credit home equity loans (HELOC). Both are secured against the value of the home or property and the terms vary from five to fifteen years in both the cases. In both the loan types the loan is required to be repaid in full. This is done in case the home is sold.
Limit |
Interest Rate |
|
$30,000 Home Equity |
8.41% |
|
$50,000 Home Equity |
8.29% |
|
$75,000 Home Equity |
8.33% |
|
$30,000 HELOC |
5.18% |
|
$50,000 HELOC |
4.91% |
The fixed rate home equity loan allows the borrower allows the borrower to receive a lump sum payment from the property equity. After the sum is received one is required to repay it off at an interest rate and within the duration which are per-determined by both the parties. This installment is usually on a monthly basis.
In case of line of credit home equity loan; it comes with a credit card. Hence, the borrower is notified about the maximum limit of the credit card and one can spend the money through it. The loan repayment is done on a monthly basis and the borrower pays the installments on the basis of a pre-determined rate of interest. Once the line of credit is over, the repayment of outstanding amount is to be done in full.
Resorting to home equity loans can be financially rewarding but at the same time it is risky. So, look before you leap!
