If you have been in your home for a number of years and you
have established some equity, you may be considering liquidating
some of that equity. A great way to do this would be to go with
a Home Equity Loan.
A home equity loan allows for you to borrow off of the equity
you have established in your home through appreciation and
monthly mortgage payments without having to touch your first
This is why a home equity loan can also be known as a second
mortgage. But before you go and start signing applications, shop
around so you can find the best home equity loan rate out there.
There are two types of home equity loans on the market that you
have to choose from. The first one is your standard home equity
loan with a fixed rate, which of course, is based on prime. This
loan you receive in a lump sum and begin to make monthly
payments upon it immediately.
The second type of loan is the home equity credit line. This
one, as its name implies comes in the form of a line of credit.
The home equity line of credit has a rate that is variable,
which means it will fluctuate with the prime rate. Many of them
come with introductory rates for the first five or six months.
Once approved for a home equity line of credit, you will not
receive it in the form of a lump sum. Instead you will receive
it in the form of a check book giving you easy access to draw
upon it in the amount you would like at your convenience. Once
you do draw upon it, you will have to begin paying it back on a
monthly basis. Normally in the form of interest only for the
first ten years.
Suppose you were to receive a home equity line of credit in the
amount of $25,000.00. If you only wanted to borrow $6000.00,
than all you would have to do is write out one of the check's
the lender sent you and deposit it into your checking account.
Your payment would than be based on the $6000.00 you borrowed
from your line.
Keep in mind, home equity credit lines do come with a rate that
is variable, and that rate is based on prime. So, if the prime
rate goes up, the rate on your home equity credit line will go
up as well.
On the other hand, if the prime rate goes down, than the rate on
your home equity credit line will go down.
Mortgage companies are very competitive, so whichever home
equity loan you decide to go with, it would be in your best
interest to shop around so that you may compare rates.
After allowing for a few loan officers to assess your situation
and offer you a rate and product, base your decision on the rate
and product that best fits your needs and budget.
About the author:
Jennifer Hershey has more than twenty years of experience in the
Mortgage Industry as a loan officer. She is the owner of
http://www.explainingmortgages.com/, a mortgage resource site
devoted to making mortgage terms and products easy to