|
In this day and age, when most of us do not have the hard cash
required to decorate our dream home or take that much-wanted vacation, the next
best thing is to take a home equity loan. So what's a home equity loan?
A home equity loan is simply borrowing on the difference of the value of your
home and the outstanding mortgage on the house. Lets say, you have bought a home
worth $50,000 some time back, after making a down payment of $5,000. The value
of your home has now appreciated to $60,000. The difference between the present
value of your home ($60,000) and the outstanding payment ($45,000) is $15,000.
This is the amount of the home equity loan that you can apply for.
Home equity loans are normally called second mortgages, as they are normally for
a lesser tenor than an existing first mortgage. However, one "caveat" that
borrowers need to be very careful of is that in the event of default, the lender
can foreclose on the house. Home equity loans have become hugely popular
recently because of falling interest rates and tax deductions on interest
repayments. Moreover, since a home equity loan has the house as collateral, the
interest rates on such loans are normally lower than on other types of loans.
Due to the nature of a home equity loan, borrowers normally belong to the
middle-aged bracket earning a decent income. As a result of this, the default
rate among home equity loan borrowers is very low.
There are two broad types of home equity loans:
-
Fixed loans, which are very good for people who want some
discipline in their repayment schedules. These are just like a normal term
loan.
-
Line of credit, (HELOC) which offers more flexibility to the
borrower in terms of repayment schedules and floating rate of interest.
So, still waiting to remodel your home or buy that set of
wheels? Go for that home loan now! |
