All You Wanted To Know About Home Equity Loans
By: Debbie Groves | Posted: 05th November 2007
Need money to finance your major home repairs
or college education or to pay off your
medical bills? Consider home equity loans.
These loans are offered on the condition that
you use the equity in your home as collateral.
They make a lien against your house and reduce
your actual home equity.
Home equity loans as second mortgages
A home equity loan is secured against the property value, quite like a traditional mortgage. This loan usually is for a shorter term than the first mortgages, though not always. However, the US tax laws allow you to deduct the home
equity loan interest from your personal income tax.
Home equity loans as second position liens
You will also find home equity loans as a second trust deed or a second position lien, with the option of being held in the first or in some cases in the third position. The majority of the home equity loans need a fabulous credit background as well as a reasonable loan-to-value and merged loan-to-value ratios.
The two kinds of home loans
[1] Open end home equity loan: Open end home equity loans are revolving credit loans, and thus can also be called home equity line of credit (HELOC). The borrower here is offered the option to choose when and how he would like to borrow against the equity in the property. The original credit limit is set by the lender. Moreover, the criteria for these loans are similar to those for closed end home equity loans.
It is also possible for you to borrow 100% of the home value at the maximum, and that too without any liens. These lines of credit are available for a maximum period of 30 years, most often at a variable interest rate. The minimum monthly payment can be quite low, with you having to fish out only the interest that is due.
The interest rate is usually based on the Prime Rate together with a margin.
[2] Closed end home equity loan: This kind of home equity loan enables the borrower to receive a lump sum during the closing and prevents the borrower from borrowing further. The maximum money
that can be borrowed is determined by several
variables, including credit history, income, and
the evaluated value of the collateral.
It is though common to borrow a maximum of 100% of the assessed value of the home, without any liens; however, there are lenders who will go over 100% during doing the over-equity loans. The state law governs, as Texas allows borrowers to borrow a maximum of 80% of the equity.
Closed end home equity loan rates are usually fixed
and you have an option to liquidate them for a
maximum period of 15 years. There are certain home equity loans that provide decreased liquidation and at the end of the term, a huge payment is due. These big amounts can be avoided if you make more than the minimum payment each month or refinance the loan.
Fees of the home equity loans
Home equity fees that may be applicable include originator fees, appraisal fees, stamp duties, title fees, closing fees, early pay-off, arrangement fees and other costs. Conveyor and surveyor or valuation fees can also be applicable to the loans.
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Debbie Groves is the owner of The Best Home Equity Loans http://www.thebesthomeequityloans.com">the best home equity loans which is a premier resource for home equity loans information. For more information, please visit: http://www.thebesthomeequityloans.com
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Tags: home equity loans, personal income tax, value ratios, home equity line, home equity loan, equity line of credit, home equity line of credit, credit loans, revolving credit, home loans, variable interest rate, second mortgages, prime rate, traditional mortgage, credit background, third position, home repairs, trust deed, maximum period