Home Equity Loan

Home equity loans, often referred to as HEL, take their name from the borrower’s possibility to use the home equity for 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.

It is more difficult to get home equity loans when you have a bad credit history, 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?

With closed end home equity loans, the borrower gets a certain sum of money and is forbidden from borrowing anything further. The personal data, the income, the credit history and the value of the collateral establish the amount of the loan. While some lenders will give you a 100% amount of the appraised value of the house, 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 are normally fixed, with the mention that loan re-financing is possible on certain conditions. On the other hand, open end home equity loans are also known as 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 disadvantage with open end home equity loans is that the interest rate is variable and you may have to pay the sum back over a thirty year period. Depending on the conditions in the financial agreement, and the lender’s policy, the the monthly payment can include only the interest rate for several years in a row. Besides the regular pay-back scheme, 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. Make sure to get answers to all questions involving the fees, before the signing of the contract, and keep in mind the fact that there is no loan without some sort of fees applied to it. 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