Home Equity Loans — Compare Lenders to Save Time and Money
The term 'home equity' refers to the value of a home, subtracting any money owed on it. A home equity loan is a mortgage on the borrower's principal residence. Home equity loans are typically borrowed for the purpose of making home improvements or as a means of debt consolidation. Paying for college tuition, or medical expenses are also fairly common reasons for taking out a home equity loan.
There are two basic types of home equity loans: first mortgages and secondary mortgages. A first mortgage is a loan secured by a home that has no other mortgage against it. It is generally the loan you take out to purchase or refinance the home. A secondary mortgage is simply a loan secured by a home that has at least one other mortgage or lien. Home improvement loans are often secondary mortgages.
Home equity conversion is a way of turning your home's value into cash without having to move out or make regular loan repayments. A Home Equity Conversion Mortgage (HECM) is the only reverse mortgage program insured by the FHA.
Another way to borrow money against the value of your home is a home equity line of credit. A line of credit can offer a large amount of cash at a reasonably low interest rate, and certain tax advantages can also be available.
Home equity loans and home equity lines of credit are excellent options for borrowers in certain situations. It is, however, extremely important that you thoroughly research such loans before committing. Consider all alternatives before borrowing money, to avoid putting your home in jeopardy. Just because you qualify for a home equity loan, does not necessarily mean that you will be able to afford it. Because home equity loans provide easy access to cash, you may end up borrowing money more freely. Find out what your annual percentage rate will be and what the various costs and fees for establishing the loan will be. When applying for a home equity loan, you may be required to pay fees including those for a property appraisal, application fee, and up-front charges or points. You will probably be obligated to pay closing costs to cover attorney fees, title search, mortgage preparation, mortgage filing, property insurance, title insurance, and taxes. Once you receive your home equity loan, you will still be required to pay certain continuing fees that may include an annual membership fee or maintenance fees as well as transaction fees that are paid when you withdraw money.