Understanding the Credit
A loan on the equity of your home simply allows for a homeowner to borrow against his or her abode. Another way to look at it is that the homeowner uses the equity in his or her abode as collateral. These borrowings are often taken out by homeowners that need to finance repairs or remodeling, pay for unexpected medical bills, or even to pay for higher education.
Basically what this type of credit does is create a lien against the property and until it is paid off the actual value in the house is reduced by the borrowed amount.
Not everyone is a candidate for this. These are reserved for those that are and have been in good standing with their mortgage company and also have excellent credit histories. This loan is essentially a second mortgage because they are secured with the value of the house just as a first mortgage is.
Most of the time these are not as long term as a first mortgage, meaning they will need to be paid off before the original borrowing.
There are two basic types: open end and closed end. Open end home equity loans are those that are referred to as a line of credit. With this type of borrowing the borrower can determine when and how they would like to borrow. These usually allow for the borrower to borrow 100% of the value and can be made available for up to 30 years with a variable interest rate.
A closed end option is a bit different in that the borrower is given a lump sum of money and cannot borrow anything else. The amount that is given is figured by determining the value, the income of the borrower, as well as the credit history. These have fixed rates and the tenor is usually 15 years.
A home equity loan is a good idea for someone who owns a house and needs cash to pay for things such as those mentioned above. Many times homeowners are able to secure a better interest rate than they can on a personal loan, making this a more affordable option. Before assuming that this is the best choice for you, make sure you look into all of the fees to be sure that it really is the most affordable option.
