What is a Home Equity Loan?

Deciding on a home equity loan is a big decision in a home owners life. It is imperative to research all lenders and options before deciding on a loan. A home equity loan is a one-time lump sum that is paid off over a set amount of time, with a fixed interest rate and the same payments each month. you have to pay off the balance when you sell the house. A home equity loan allows you to borrow money using your home’s equity as collateral. A home equity loan is a second mortgage that lets you turn equity into cash, allowing you to spend it on home improvements,weddings, credit card debt consolidation, college education or other large expenses.

There are two types of home equity debt: home equity loans and home equity lines of credit, also known as HELOCs. Both are sometimes referred to as second mortgages, because they are secured by your property, just like the original, or primary, mortgage.

Home equity loans are usually repaid in a shorter period than first mortgages. Most commonly, mortgages are set up in terms to be repaid over 30 years. Equity loans may also have a repayment period of 15 years, although it might be as short as five or as long as 30 years. They are available to homeowners in fixed rates, variable rates and with bad credit options. When considering a home equity loan it is beneficial to contact a loan specialist for specifics to your unique financial needs.

The most common question potential loan consumers ask about home equity loans is:
“Are home equity loans and second mortgages two names for the same thing?”
The answer is yes. A Home equity line of credit has several differences, however. A home equity loan being a one-time lump sum that is paid off over a set amount of time, with a fixed interest rate and the same payments each month. Understanding home equity loans can be hard and confusing but contacting a loan professional and using our mortgage calculator can help to make things more clear.

Recent news reports show that last year, almost half of refinancing borrowers did “cash-out refis” which means that they refinanced for more than they owed and pocketed the difference. But the Fed is currently in a rate rising mode. Now that rates are higher, homeowners don’t want to refinance again. The only way to cash out productively is to take out a home equity loan or line of credit.