Sometimes we come across certain situations where we may require a large amount of funds to support our need. It might be to complete your college education, pay your medical bills or may be to consolidate your debt. Under such situations we mainly look at various finance options but it is really hard for an individual to get a huge amount of loan. To avail a loan without providing collateral worth its amount is just not an easy task. So Home Equity loans are a great option at these odd hours.
A home Equity loan is a type of loan in which the borrower uses the equity in their home as collateral. Equity can be defined as the difference between the market value of your house and the amount which you owe on it. It can also be known as the financial value of a real estate property beyond any sum you owe on it for claims, loans or mortgages. This kind of a loan is secured as the lender gets the home as collateral and the loan amount depends on the amount of equity. The borrower is only sanctioned that amount of loan which is equal to his equity. This makes them secured loans because here the lender is sure of getting back the loan amount even if the borrower defaults. Typically home equity loans are offered at much lower interest rates than any other kinds of financing, such as credit cards and personal loans. There are larger repayment periods that range between 5 years and 30 years and you can easily choose the one that suit your repaying capacity. The EMIs on this loan depends on the same factors in which a typical EMI rests such as the amount of loan applied for and the repayment time selected. Similarly even the interest rate varies the EMI.
These loans are categorized in two types - A home equity loan or a second mortgage and Home equity line of credit:
A home equity loan or a second mortgage is the scheme through which one can borrow total amount worth your collateral in one go or lump sum. With this type of home equity loan, interest begins building as soon as the bank issues you the money. Such a loan is paid off by the borrower over a fixed amount of time, for a fixed rate of interest and fixed monthly payments. It also known as a close ended loan.