What Home Equity Loans Can Do For You?
Your home's equity can be used as a collateral to loan money. It can serve as a guarantee so that if you are unable to pay your debt, the lender can sell your collateral as a payment for your debt.
The home equity loan will serve as a second mortgage that will allow you to turn it into money which you can use to improve your home, for college education or whatever expenses that you are in need of.
There are two kinds, the home equity loan or the lines of credit. These types of debts are repaid in shorter time spans than first mortgages. If normally, a first mortgage may be repaid in 30 years, a second mortgage may be repaid in as short as 5 years to as long as another 30 years, averaging at 15 years.
The whole amount of the first mortgage in a home equity loan is paid over a specified time span, paid monthly at the same amount with the same interest rate.
In lines of credit, just like in credit cards, the basis for the amount to be paid is the revolving balance. A set amount is lent by the lender at a time limit. Money can be withdrawn during this time limit, when you need the money. While you pay off the principal amount, you can borrow again using the credit left. The good thing about home equity lines of credit is that you only pay for what you actually spent. The interest rates lessen as you pay off the outstanding balance.
Lines of credit is more flexible than the home equity loan because you can stay in debt with home equity loans. Interests are only being paid while the principal amount remains the same. The interest rate, therefore, varies as the principal varies.
Related Tags: home equity loan, home equity loans, home equity mortgage, equity mortgage
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