Basics Of Home Equity Loans Explained
Home equity loans are basically second mortgages that borrow against existing equity that an owner has in their home. While this does add an extra amount of risk to a borrower's mortgage obligations, these types of loans can certainly come in handy.
Since you are borrowing money against your home, you have a good chance at finding a low rate home equity loan -- or at least a lower rate than other types of loans such as a traditional car loan. Often times, home equity mortgage loans are used for home improvement projects or to finance other major purchases such as car loans, medical expenses or college tutition.
Closed End Home Equity Loans
Closed End Home Equity loans are the most common type of this loan. This is a more restrictive second mortgage home equity loan in that you can't borrow additional money than the original amount. If you need additional money in the future, you would need to take out another loan or refinance your home equity loan.
Home Equity Loan for Debt Consolidation
One purpose of a home equity loan is to consolidate existing debt into a single monthly payment. This is especially true if you have lots of high interest credit cards and lines of credit that are confusing and/or are sapping lots of cash from you each month. By using your existing equity to pay off high interest credit cards, you are saving money each month and lots of interest payments that do not go towards paying off the principal amount owed on each line of credit. In addition, home equity loans often carry a low rate of interest, which is key towards insuring a solid financial future.
What to Be Aware Of With HELOC loans
It is extremely important however that you are able to make your monthly payments. If you miss several home equity loan line of credit payments, you can potentially lose your home. This is obviously something that you do not want to have happen. So sit down and work out what you can reasonably pay each month if you were to take out a second mortgage and your lender can show you what you qualify for and help you find the best home equity loan interest rate.
Another caution to taking out home equity loans. In a declining housing market, if you take out a loan on the equity in your home and the price of your home drops, you may effectively may owe the bank more money than the original loan amount. Home equity loans are good in strong markets, but should be entered into with caution in tight housing markets.
Alternate Approach: Home Equity Line of Credit
An alternative to home equity loans are home equity lines of credit. The major difference between the two is that a line of credit allows you to borrow up to 125% of the value of your home. A line of credit will usually be an adjustable loan, meaning that it will fluctuate according to the interest rate. Typically a home equity line of credit will carry a higher interest rate than a fixed rate home equity loan.
California Home Equity Loans
California home equity loans are very popular given the recent surge in home prices and the high price of homes. Low interest rate home equity loans give home owners lots of equity to work to improve their home etc. Orange county home equity loans have been very popular given that dynamic market. Home equity loans are also poular in states such as Florida, Colorado and Texas.
Bad Credit Home Equity Loan
If a borrower's FICO score is below 520, they need to access a bad credit home equity loan. These loans will carry higher interest rates and diffterent terms than tradition HELOC loans.