Understanding Home equity
A second mortgage is home equity loan. This loan allows the homeowners to borrow the required money by ensuring leverage of their homes. There are two types of home equity loans.
*Fixed Rate Loans:
The above mentioned home equity loans can provide a single payment to the borrower. This needs to be repaid over a time period which is pre-set along with the agreed rate of interest. The interest along with the amount of the loan stays the same as long as the loan lasts.
*Home equity line of credit Loans:
The HELOC (Home-equity loan of credit) is a loan of variable-rate which is similar to a credit card. The spending limit for the borrower is pre-approved and can withdraw the same using the credit card given to them or even with checks. The interest monthly depends on the current rate of interest and the money borrowed. This HELOC has a term set and with the end of this term the loan needs to be cleared.
Some Benefits of Home equity:
It is important to have some information on the many benefits offered by the home equity.
1. Paying off Debts:
HELOC or fixed rate home loan can be used to consolidate the outstanding debts to a lower rate of interest. Homeowners can use this loan to pay off another loan like the car loan or probably the credit card debt. All you need to ensure is that this loan is not wasted on frivolous expenses. You need to manage the finances well to enjoy the benefit sans any tensions.
2. Paying for Education:
As the rate of interest with the HELOC or the home equity loan might work out lower as compared to the rate of interest of the student loan, you can pay off for your education with this loan. Before choosing the home equity for education it is wiser to go through the different student loans available and compare the different rates of interest.
3. Home improvements:
You find most homeowners opt for the home equity loans for the required home improvement. Besides adding comfort and style, the home improvement can also increase the value of your home. Which means, you benefit in the long run or when you intend reselling the same.
Home Equity is right:
The home equity works out an apt option for a borrower who is not only responsible but also has a reliable, steady income. This is due to the fact that the home equity offers flexibility in the costs that can be covered, this is more so for large expenses. You need to ensure you compare the different loans before you settle for a specific one. You need to keep your requirement in mind and also consider the repayment ease. This loan is not for a borrower who has got into the habit of spending lavishly on unnecessary holidays or trips. This works apt for emergencies or for paying lower rates of interest on the mortgage.
You need to consult a professional who is well qualified to ensure you can avail the maximum benefit of the home equity.