Question:

What information about home equity loans do I need?

Answer:

HELs and HELOCs have become so popular that certain information about home equity loans will be helpful to help familiarize one with the subject.

What is a home equity loan?

In short, this a loan using your property as collateral. It is generally used as a second lien, but can be a first mortgage, or come as a third or fourth lien. In most cases, you will have a first mortgage and the difference between you first mortgage and your house value can be borrowed with a home equity loan.

Home Equity Loan Types

The traditional home equity loan (HEL) is a closed-end lump sum second lien installment loan. They usually carry fixed rate and payments for a term of 5 to 20 years.

The home equity line of credit (HELOC) is another very popular home equity loan. It carries adjustable rates, is in fact an open-end HEL - it has a draw period of 5 to 10 years and repayment period of 10 to 15 years. A HEL is like any revolving line of credit. If you have a $30,000 line of credit and use half of it, if you repay $5,000 you will be able to borrow $20,000 again.

Pros and Cons of a Home Equity Loan

Interest lower than credit card rates and tax deductibility are the greatest benefits from a home equity loan or line of credit. You could use a home equity loan to buy a house and interest will be tax deductible (within restrictions). However, failing to make payments on a HEL or HELOC may cause you to lose your home.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
Was this Mortgage QnA helpful?
Not at all
  • Currently 2.9/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Definitely
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA: