Home Equity Loans

You can get a home equity loan by pledging your house to the bank. The amount you get will be determined by the current market value of your house. Often home equity loans can become useful for families to finance major home repairs, pay medical bills or college education. A home equity loan creates a lien against the borrower's house.

Home equity loans most commonly are second position liens. However they also can be held in first or, less commonly, third positions as well. For Most home equity loans it is essential to have a reasonable loan-to-value, combined loan-to-value ratios and a good to excellent credit history. There are two types of home equity loans, closed end and open-end home equity loans.

Both these home loan types are often called second mortgages. Just like in a traditional mortgage, the loan amounts are secured against the value of the property. Home equity loans and lines of credit are mostly given for a shorter duration than first mortgages. In most countries, home equity loan interests are income tax deductible.

Closed end home equity loans

With closed end home equity loans the borrower receives the whole loan amount in one lump sum. The maximum amount of money you can borrow will be determined mostly on how much you earn, your credit history and the appraised value of the collateral. It is often possible to borrow up to 100% of the appraised value of your home, less any other liens. There are lenders who will go above 100% when doing over-equity loans, but in most countries there are applicable laws governing such home equity loans.

Normally Closed-end home equity loans have fixed rates and can have a payback period of 15 years. With some home equity loans you can opt to have reduced amortization whereby a bigger amount should be paid at the end of the term. You can avoid these big lump-sum payments by paying above the minimum payment or home equity loan refinancing.

Open-end home equity loan

Open-end home equity loan also referred to, as a home equity line of credit is a home equity loan with revolving credit. With an open ended home equity loan the borrower, though still borrowing against the equity in the property, can choose the time and the borrowing frequency. The lender will set an initial limit as to how much can be borrowed based on criteria similar to those used for closed-end home equity loans. It may be possible for you to borrow up to 100% of the value of your home, minus any other liens. These lines of credit can span a period of 30 years, usually at a flexible interest rate. The minimum monthly payment can be as low as only the interest that is due. The interest rate typically would be based on the Prime rate plus a margin.

Home Equity Loan Fees

Home equity loan fees most likely will involve the following: Appraisal fees, originator fees, title fees, stamp duties, arrangement fees, closing fees and early pay-off. Other costs are also often included in loans. Surveyor and conveyor or valuation fees may also apply to loans, some may be waived. It might be possible for you to get a reduction on survey or conveyor and valuation costs if you can find your own licensed surveyor to inspect the property considered for purchase. You might also be asked to pay a fee as title charges in secondary mortgages or equity loans for renewing the title information. Most loans will involve fees of some sort, so make sure you read and ask questions about the fees that are charged.