A home equity loan is a type of loan in which the borrower uses his home equity as collateral. The loan amount is determined by the value of the property, and the value of the property is determined by the appraiser of the lending institution. Home equity loans are often used to finance large expenditures such as home improvements, medical bills, or higher education. A home equity loan creates a lien against a borrower's home and reduces the actual home equity.
Most home equity loans require a good up-to-date credit history, a reasonable loan to value ratio, and a loan to value ratio. Home equity loans consist of two types: closed ends (traditionally just called home equity loans) and end open (a.k.a is a home equity line of credit). Both are usually referred to as second mortgages, because they are secured by property values, such as a traditional mortgage. Home equity loans and lines of credit are usually, but not always, for a shorter period than the first mortgage. Home equity loans can be used as a primary mortgage of someone replacing a traditional mortgage. However, one can not buy a home using a home equity loan, one can only use a home equity loan to refinance. In the United States until December 31, 2017, it is possible to reduce the interest on a home equity loan on a person's personal income tax. As part of the 2018 Tax Reform Bill signed into law, interest on home equity loans is no longer deductible from income taxes.
There is a specific difference between a home equity loan and a home equity line of credit (HELOC). HELOC is a revolving line of credit with adjustable interest rates while home equity loans are a one-off loan at a time, often at a fixed rate. With HELOC, borrowers can choose when and how often to borrow against property equity, with lenders setting a starting line for credit lines based on criteria similar to those used for closed loans. Like a closed loan, it is possible to borrow up to an amount equal to the value of the house, less any liens. This line of credit is available for up to 30 years, usually with variable interest rates. Minimum monthly payments can be as low as only interest due. Typically, the interest rate is based on the main interest rate plus the margin.
Video Home equity loan
Cost
A brief list of fees that might apply to a home equity loan:
- Appraisal fee
- The originator fee
- Title fee
- Stamp duty
- Setup fees
- Closing costs
- Initial payment fee
- Inactive cost
- Annual Fee or Membership
Surveyor and conveyor or assessment fees also apply to loans but some may be waived. Survey or conveyor and valuation fees can often be reduced, as long as you find your own licensed surveyor to check the properties being considered for purchase. Title fees in a secondary mortgage or equity loan are often fees for updating title information. Most loans will be charged, so make sure you read and ask some questions about the fees charged.
Maps Home equity loan
See also
- Home equity
- Home equity credit line
- Withdrawal of mortgage equity
- Revert down payment
References
External links
- Placing Your Home on a Line of Loans is a Risk Business - from FDIC
- The Borrower Losses Home Equity Tax Deductions
Source of the article : Wikipedia
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