Home Equity Loan

Home equity loans, often referred to as HEL, represent a type of loan that allows a borrower to use the home equity as a collateral. The most common situations for the use of such loan options include medical bills, house repairs, college education and other situations of emergency when money is needed urgently. By home equity loans, there will be a lien created for the home.

People with a bad credit history will most certainly have difficulties in getting home equity loans, not to mention the fact that the loan-to-value ratios have to be adequate. Closed end and open end home equity loans represent the two categories identified for this kind of credit service; yet, lenders usually talk about these two types in terms of secondary mortgages because the guarantee for the borrowed value is the property itself. What are the features of such home equity loans?

One the borrower gets the loan, there is not possibility of getting another sum of money: this is what characterizes closed end home equity loans in the first place. The personal data, the income, the credit history and the value of the collateral establish the amount of the loan. While some lenders will provide a 100% amount of the house appraised value, in some states, legislation limits the borrowing up to 80% of the equity.

In the case of closed end home equity loans, the paying-back period can extend up to fifteen years; the rates remain unmodified, with the mention that you can choose to refinance the loan if necessary. Open end home equity loans on the other hand are also called home equity lines of credit. The borrower can get money against the value of the property without any impediment, even if the sum cannot be higher than the imposed credit limit.

The difference from closed end home equity loans is that with the open end ones the interest rate is variable and the line of credit can be extended up to thirty years. Depending on the lender and the conditions in the financial agreement, the the monthly payment can include only the interest rate for several years in a row. Besides the regular pay-back plan, there are all sorts of fees specific to home equity loans, and you need to take them into account very seriously too.

The possible fees due for home equity loans include, early pay-off, stamp duties, title fees, originator fees, appraisal fees, closing fees and so on. It is of paramount importance to clarify all the aspects involving the fees, before actually signing the contract, and and remember that all loans come with fees. Moreover, don’t forget to inquire on the tax benefits available with home equity loans because most charged rates are deductible.

Filed Under: Home Loan