Equity Home Loan

By: EconomyWatch Content   Date: 23 December 2009

About The Author

EconomyWatch Content

Follow The Money

EconomyWatch, Content Team

 

  • Dot Div
  •      

An Equity Home loan enables the owner of a home to borrow funds against the home equity or the unencumbered value of the home. Home equity is simply the current fair market value of a home minus the amount of mortgage on it. All mortgages on a home need to be considered for the calculation of home equity.

 

Equity Home Loan: Benefits and Features

An equity home loan (HEL) or a home line of credit (HELOC) allows the homeowner to mortgage the equity in the home and borrow funds for various purposes.

 

These loans can be used to:

  • improve the home

  • fund the college education of a child

  • tackle debt consolidation

  •  for any other purpose

 

This type of financing should, however, be considered carefully since it involves keeping your home as a collateral.

 

The total loan amount can be about 75% to 80% of the equity value of one’s home. While the equity home loan is a lump sum amount given at a fixed rate of interest, the HELOC enables the borrower to borrow small amounts a number of times with the time limit fixed by the lender. The HELOC works like a revolving credit and offers the home owner the chance to borrow as and when the funds are required. With the repayment of the principal amount, one can use the credit again.

 

These loans are generally the second mortgages but can be first or third mortgages too. Generally given for a shorter period of time than the normal mortgages, the duration of an equity home loan can be as short as five years too.

 

Another advantage offered by an equity home loan is that the interest payable on it is often tax deductible. Equity home loans are quite useful in consolidating one’s debt from various sources.

 

Borrowing against home equity is possible only once. So, it is essential that the funds borrowed against home equity are used properly. One can borrow again only after an existing equity home loan has been repaid or refinanced.

 

Before applying for an equity home loan, one should get the property valued according to current norms. This will enable the borrower to maximize the best while making a home investment besides enabling him/her to use the same to fund other projects or purposes.


  • Dot Div
  •      

Most Popular in Home Loans

Related Links
blog comments powered by Disqus