If you have been in your home for a number of years and you have established some equity, you may be considering liquidating some of that equity. To go with a Home Equity Loan will be an excellent way of doing this.
A home equity loan allows for you to borrow off of the equity you have established in your home through appreciation and monthly mortgage payments without having to touch your first mortgage.
This brings to the fore why a home equity loan can also be considered as a second mortgage. But before you go and start signing applications, shop around so you can find the best home equity loan rate out there.
There are two types of home equity loans available in the market from which you have to make your choice. The first type is your standard home equity loan that comes with a fixed rate, which of course, is based on prime. This loan you receive in a lump sum and begin to make monthly payments upon it immediately.
Home equity credit line comprises the second type of loan. As is implied by its name, this one comes in the form of a line of credit. Since the rate for a home equity line of credit is variable, it will fluctuate with the prime rate. Many of them present introductory rates for the duration of the first five or six months.
Once approved for a home equity line of credit, you will not receive it in the form of a lump sum. Instead you will receive it in the form of a check book giving you easy access to draw upon it in the amount you would like at your convenience. Once you do draw upon it, you will have to begin paying it back on a monthly basis. Normally in the form of interest only for the first ten years.
Suppose you were to receive a home equity line of credit in the amount of $25,000.00. If you only wanted to borrow $6000.00, than all you would have to do is write out one of the check’s the lender sent you and deposit it into your checking account. Your payment would than be based on the $6000.00 you borrowed from your line.
What has to be kept in mind is that the home equity credit lines do come with a variable rate, and that rate is based on prime. So, the rate on your home equity credit line will go up as well if there is a rise in prime rate.
On the other hand, a lower prime rate will signify a lower rate on your home equity credit line as well.
Mortgage companies are very competitive, so whichever home equity loan you decide to go with, it would be in your best interest to shop around so that you may compare rates.
After allowing for a few loan officers to assess your situation and offer you a rate and product, base your decision on the rate and product that best fits your needs and budget.