Home equity loans are ideal for getting quick cash for debt consolidation, home improvements, etc. Homeowners can get loan approvals much faster than non-homeowners. Due to rising home values, many homes have gained a significant amount of equity. Therefore, homeowners can tap into this equity and access additional funds.
What are home equity loans?
Home equity loans are similar to other types of loans offered by banks, credit unions, and other financial institutions. The only difference is that a home equity loan uses your property as collateral. Additionally, equity loans are primarily based on the amount of equity your home has acquired.
For example, if the original mortgage amount was $200,000 and the amount owed to the mortgage company is $130,000, the home acquired $70,000 in equity. So, homeowners can get a home equity loan up to that amount. The money can be used for any purpose, e.g. B. for building up savings, paying off debt or setting up a college fund.
Different types of home equity loans
Homeowners can choose between two different types of home equity loans. One type of home equity loan is a second mortgage. When homeowners take out a second mortgage, they receive a lump sum payment from the lender. In return, the property receives a second lien.
Similar to the first mortgage, homeowners are required to make monthly payments to the second lien holder. Because second mortgages are typically smaller than the first mortgage, the payments are significantly smaller.
Homeowners also have the option of applying for a home equity loan. This type of home equity loan offers flexibility. Instead of a one-time lump sum, homeowners get access to an open line of credit. For an average period of ten years, homeowners can withdraw funds when needed. Unlike second mortgages, lines of credit do not have fixed monthly payments. Rather, payments are based on the amounts debited from the account.
Choosing the right home option
Deciding between a second mortgage and a home equity line of credit can be difficult. However, homeowners need to access their personal needs. Second mortgages are better suited for people who need immediate cash for a one-time purchase, while lines of credit are more suitable for homeowners who need smaller amounts of cash over a longer period of time.