The Best Home Equity Loans and Equity Lines of Credit

How Does a Home Equity Loan Work?

A home equity loan is a second mortgage against the equity in your house. The amount of the loan is based upon how much you owe on your first mortgage and the current market value of your house. If you have paid down a significant portion of your home mortgage, than you would be able to borrow more on a home equity loan. Your lender will also file a lien against your house, usually in second position behind your primary mortgage loan. This uses your house as collateral and gives the bank an asset to lend against.

Which Type of Home Equity Loan is Right For You?

There are two types of equity loans that you can choose. Each one has its advantages and disadvantages and can be good for you depending on the situation. Both will offer you a lower interest rate than credit cards and award you other tax savings.

  • Home Equity Loans

    • A home equity loan has a fixed interest rate.
    • You are given one lump some of cash that is paid back over time.
    • There are fixed monthly payments that do not change

  • Home Equity Line of Credit

    • Lines of credit usually have a variable interest rate. Some have fixed rate option.
    • You can draw money and pay it back like a credit card.
    • You can pay interest only each month

A home equity line of credit can be very flexibile. It allows you to borrow money over a period of time in which you are not sure how much you may need. Home equity loans can give you comfort in knowing you have just the right amount of cash for your needs and that you are not paying any extra interest.

Benefits of Having a Home Equity Loan in Place

Sometimes you never know when you will need to have some extra money handy. Most home equity lines of credit can be available for up to 30 years. By having the loan in place, it allows you a rainy day fund in case your car breaks down or you need to replace something in your house. If times get tough, and you do not have a home equity loan established, banks might not lend you money based on your current economic condition.