How Does a Home Equity Loan Work

  • 4,141 views
  • 0 comment

Do you know how does a home equity loan work? When you seriously need of cash try to consider applying for a home equity loan by using your house as a guarantee, in line of this here are the things you need to know about home equity loan and the different ways on you can use this option for an immediate cash loan.

Many of us are looking for a faster way of borrowing money with low interest rates aside from using credit cards.

If you need big cash without having big trouble then you may try home equity loan. A Home Equity Loan (HEL) is a kind of loan that a homeowner can apply with using the equity of the house as the collateral. The home equity is equals to the difference of the current market value against the mortgage balance. Do you know how a home equity loan works?

To give you a clear view, here is an example. The current market price of the house is $200,000.00 and half of it is already been paid for, therefore you have a total of $100,000.00 worth of equity. This only means that the higher the current market price is the value of the equity also increases. HEL is also known as a second mortgage and the interest rate is much higher than the initial mortgage, but much lower compared to the interest rates of credit cards. This is one of the reasons why many are using HEL because of lower interest rates and an easy source for immediate cash. The lender can’t give you more than the value of the home equity and will require you to have an excellent credit history. And also, the time frame for repaying the loan may vary depending on how good your credit history is, of which normally takes 5 years up to 15 years. But most banks considered HEL as a secured loan, providing you bigger chances to acquire for it (if you’re brave enough to risk your house).

The Benefits of Home Equity Loan

There are several advantages that home equity loans can provide to the borrower. As we have mentioned earlier, the low interest rates is the first one. If you have applied for the fixed-rate loan, you are only required to pay a fixed interest rate up to the end of the line of your loan. The good news for the borrowers is that the interest is tax deductible. Next to the tax benefit is the bigger opportunity to loan greater amount of loans, depending on the value of the equity in lieu to the current market value of the house.

However, borrowers should also be aware of the risks involved in acquiring HEL. First, make it sure that you are only dealing with legitimate lenders; and second is to become responsible for the payment if you want to retain your house as your valued possession.

(All the above fields are required.)