Home Loans for Dummies: Equity Home Loans Explained

Home Loans for Dummies: Equity Home Loans Explained. Home loans for dummies and a helpful reminder for the rest of us. This article aims to provide the bare basics of what you need to know to be successful in your equity home loan. As buying a home is more than likely the most expensive investment you are going make it makes sense to do all the research you can. We will answer the following questions: 1) What is an equity home loan? 2) What kinds of home equity loans are there? 3) Which one is the best for you?

Remember that this advice is only the beginning, you need to speak to financial advisor, do research by yourself on the internet, and learn all you can about the equity loans offered, to make sure you have the best deal you can get.

1) What is an equity home?

An equity home loan is a loan that uses your home as a security. This differs from a typical mortgage in that the loan is not on the property or used to pay for the home it uses as a security. The amount of the equity loan is decided by both parties based upon the equity of the home. Equity is a value calculated by taking away the amount owed on the property from the current market value of the home. For example if the property has a market value of 300,000 $ and there is still 150,000 $ pending on the mortgage, the equity on this home is of 150,000 $. This means you could probably get an equity loan somewhere in the vicinity of 100,000 $. These loans are great because they are pretty safe for the lender and therefore elicit a low interest rate for the borrower. They are also a great way to get a good credit score as they are easier to get approved and are not too expensive.

2) What kind of home equity loans are there?

There are various products that work on the same idea of home equity loans. Reverse mortgages for example are very similar, but are exclusive to people over 62 years old, we will talk further on them in future articles. Equity loans or mortgages are divided into two broad groups; 1) lump sum equity loans and 2) Home equity lines of credit.

A lump sum equity loan is what it sounds like, a home equity loan where you get the amount borrowed in one juicy go. Home equity lines of credit are different in the sense that you only borrow what you want, when you want up to the amount you agree with the lending company or bank. Home equity lines of credit have many advantages, they are one the cheapest home loan types as they are completely secured and the lending company still has control of most of the money (unless you spend it all) for most of the term. This way you can finance large products like the renovating of your home without feeling you have t o spend the whole amount you borrow. You borrow what you need when you need it and therefore minimize your interest payments.