Basics Of Homeowner Equity Loans
Chris Channing
A loan in which the borrower uses the equity in their home as collateral is known as a home equity loan. Home equity loans can help finance major home repairs, college education, or medical bills. Through a home equity loan a lien is created against the borrower's house, and actual home equity is reduced. A lien is a type of security interest over an item of property to secure a payment.
Home equity loans may be a first, second or third position lien, but it is most common that they are a second position lien. When you are trying to get a home equity loan you should have reasonable loan-to-value and combined loan-to-value ratios. You will also need a very good credit history as it is required most of the time.
Closed end and open end are the two forms of home equity loans. Generally the both of these are referred to as second mortgages. The reason is because they are secured against the value of the property, like a traditional mortgage. Home equity loans may have a longer term than first mortgages but generally they have shorter terms.
Closed End Loan
Receiving a lump sum at the time of the closing and being unable to borrow more money is done through a closed end home equity loan. There are some things that can affect how much money you may borrow. Things that affect that are credit history, income, and appraised value of collateral. Generally you will be able to borrow up to 100% of the appraised value of the home. It is even possible that a lender will let you borrow over 100% through an over-equity loan.
Open End Loan
A borrower chooses when and how often they borrow against the equity in the property through an open end home equity loan. Also the lender sets an initial limit to the credit line bases on factors such as income and credit history. Another name for an open end home equity loan is a home equity line of credit. It is possible that you can borrow up to 100% of the value of the home, much like with a closed end loan. Your monthly payment can be as low as the interest. The interest rate is normally based on a prime rate plus a margin.
Appraisal fees are one of the many fees that can be associated with a home equity loan. The others include such things as: titles fees, stamp duties, closing fees, arrangement fees, originator fees, early pay-off, and other costs that may be included with a loan. Surveyor and conveyor or valuation fees are another type. It is possible that that the surveyor fee may be waived. The main way to reduce the cost of a surveyor fee is by getting your own licensed surveyor to inspect the property.
Home equity loans are used so a borrower can use the equity in their home as collateral. There are two different types of home equity loans, closed end and open end. Thought both of them you can borrow up to 100%, or maybe even more, of the value of the home. When getting a home equity loan it is normally required that you have very good credit history and good income. There are several fees that come with home equity loans but it is possible to reduce the cost of some of these fees.
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