Home Equity Loans

Watching a banker come up with interest rates is often like watching a top-notch musician on stage – you never quite understand where the low numbers went and where the high interest rate comes from. HELOCs, or home equity lines of credit, can be even more confusing than the adjustable rate mortgage you might have or that flat rate credit card in your wallet.

When you purchased your home, your loan amount was figured by subtracting your down payment from the agreed-upon asking price. You either qualified or you didn’t based on your credit history and score as well as your ability to pay back debts.

When the debt gets a little too heavy to want to hold on to it, a possible solution may be to use the equity you have in your home as the basis for a loan. If is possible for you to get good terms and be able to save some money by consolidating your debts in this way. There are a number of options available, and here are some tips about what to look for when you go to consolidate your debts.

There are now many different types of home equity loans, but they will all basically fall into two general kinds - the fixed rate, and the adjustable rate (ARM). A home equity loan is usually a second mortgage. A fixed rate mortgage gives you the peace of always knowing what your monthly payment will be - for the life of the mortgage. An adjustable rate mortgage, on the other hand, does not give you such comfort, but it can give you a good amount of savings in good economic times. The payment adjusts according to the market on a monthly or yearly basis.

There are many reasons for looking into home equity loans and home equity lines of credit. Some of the chief reasons that home owners look to borrow against their equity is for home improvements or repairs, to pay off medical bills or to finance college education for their child. There are a few considerations you should take into account before applying for a home equity loan—primarily the reasons for doing so.

A home equity loan is money that is borrowed against the value of your home minus the liens on the property—this amount is the equity you have. For example, if you home has an appraised market value of $130,000 and your first mortgage principal is $90,000, then you have $40,000 in equity—money that you can borrow against. When you take out a home equity loan or home equity line of credit, you must understand that there will be another lien against your home, that you will have to pay off if you sell your home.