A Thorough Guide To Equity Loans

When a borrower uses the equity in their home as collateral it is known as a home equity loan. Home equity loans are generally used to help finance expensive things such as medical bills, major home repairs, and college education. A lien is created through a home equity loan. A lien is a form of security interest over an item of property to secure a payment. The lien in a home equity loan is created against the borrower's house, and reduces home equity.

Home equity loans are mostly second position liens but they can also be first or third position. To get a home equity loan it is normally required that you have good to excellent credit history. You may also need reasonable loan-to-value and combined loan-to-value ratios.

Closed end and open end are the two forms of home equity loans. Generally the both of these are referred to as second mortgages. The reason is because they are secured against the value of the property, like a traditional mortgage. Home equity loans may have a longer term than first mortgages but generally they have shorter terms.

Closed End Loan

Receiving a lump sum at the time of the closing and being unable to borrow more money is done through a closed end home equity loan. There are some things that can affect how much money you may borrow. Things that affect that are credit history, income, and appraised value of collateral. Generally you will be able to borrow up to 100% of the appraised value of the home. It is even possible that a lender will let you borrow over 100% through an over-equity loan.

Open End Loan

An open end home equity loan is when the borrower chooses when and how often they borrow against the equity in the property. The lender sets an initial limit to the credit line based on the same factors for closed end loans. An open end home equity loan is also known as a home equity line of credit. Similar to a closed end loan, you may be able to borrow up to 100% of the value of the home. The lowest monthly payment can be as low as the interest that is due. Generally, Prime rate plus a margin bases the interest rate.

Home equity loans generally come with quite a few fees. Some of these fees include: arrangement fees, early pay-off, originator fees, stamp duties, title fees, closing fees, and other costs. There is also a surveyor and conveyor or valuation fees. If you find your own licensed surveyor to inspect the property you may be able to cut the cost of the fee.

Home equity loans are used so a borrower can use the equity in their home as collateral. There are two different types of home equity loans, closed end and open end. Thought both of them you can borrow up to 100%, or maybe even more, of the value of the home. When getting a home equity loan it is normally required that you have very good credit history and good income. There are several fees that come with home equity loans but it is possible to reduce the cost of some of these fees.

Article by: ChrisChanning | Total views: 10 | Word Count: 529

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