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Home Equity Loan Facts
By Michael Colucci
A home loan is a special type of loan that is used by homeowners who wish to use their as collateral. It may be necessary for a family to obtain a home loan for things such as medical bills, college costs, or house repairs. In a nutshell, a home loan is basically a lien that is placed on the property. Obtaining a home loan requires the customer to have good credit, and they should be a low risk borrower. Home loans are divided into two types, and these are open end and close end. A home loan may also be referred to as being a second mortgage.
When compared to traditional mortgages, home loans tend to be shorter in length. In places like the US, homeowners may be able to deduct the interest the earn on their income taxes. With the closed end home loan, the homeowner will be given a set amount of money at the closing, and they will not be able to borrow any more money. The amount of money that they are given will be determined by their credit score, salary, and the value of the home. It is not uncommon for a homeowner to borrow 100 percent of the value of the house, and some lenders will go beyond 100 percent in a process that is called over equity.
Closed end home loans will often have rates that are fixed. In addition to this, the loan may be amortized for as long
as 15 years. Once the term of the loan ends, the homeowner may need to pay what is called a balloon payment. To avoid the balloon payment, the homeowner will need to either pay more than the minimum payment each month or refinance the home loan. The open end home loan may also be called a home line of credit. With this loan, the homeowner can decide when they want to borrow money against the of the home.
At first, the lender will set a limit on the credit line, and this limit will be dependent on many of the things that are used with closed end home loans. As with the closed end loan, it is possible for the homeowner to borrow 100% of the value of their home with open ended home loan. The length of these loans may be as long as 30 years. The interest rate for the home line of credit will be variable. The minimum payment that is made each month will be directly connected to the interest. The interest rate of both of these loans will typically be dependent on the prime rate.
Home loans have a number of powerful advantages, and they are utilized by millions of consumers. Many people encounter situations where they need large sums of money, and they money that they have may be tied up in investments. Home loans are a great way for them to pay for these large expenses.
Michael Colucci is a writer on Home Equity Loan which is part of the Knowledge Search network
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