There are two major types of home equity loans, this are fixed rates loans and home equity lines of credit. Both types are available with terms that generally range for a period of between 5 to 15 years. These two loans are similar in that they must be repaid in full if the home on which they are borrowed is purchased by another buyer.
Home equity loans are loans that are mostly to finance projects using the equity in one’s home as security. Many people have home appliances and properties worth a lot of money and they can always use this items as security for a loan .this loans are mostly secured due to the available of the home.
Fixed rate home equity loans are loans that provide a single and lump sum payment to the person borrowing the loan. Home equity loans are repaired after a fixed period of time at an agreed and fixed interest rate. The payment of the fixed rate loan and interest rate remain the same over the lifetime of the loan.
These are home equity loans with a variable interest rate. In this arrangement loan seekers are pre-approved for a certain spending limit and can withdraw money when they need it using a credit card or special checks. When one has a home equity line of credit their monthly payments will always vary based on the amount they asked for as loan and the prevailing interest rates in the market. Similar to the fixed-rate equity loans, these loans have a set term which when reached the remaining loan amount must be repaid in full or the home equity will be repossessed and used to repay the loan.
Home equity loans are very useful to most of the clients in that they offer a channel and source of money to run their different projects. Home equity loans also have lower interest rates compared to credit cards and other loans that customers take during emergencies. Interest paid on a home-equity loan is also tax deductible and works magic when the borrower consolidates debt with the home-equity loan to get a single payment, with a lower interest rate and many tax benefits.
Home equity loans lenders are putting a lot of energy in advertising and marketing to ensure more borrowers take home equity loans due to the better and more interest and fees earned from these loans. If the borrower fails to pay the loans, the lender gets to keep all the money earned on the initial payments and also goes on to repossess the property, sell it and restart the cycle with the next borrower.
Home-equity loans can be valuable and very useful for borrowers who are focused and responsible to ensure all the loan money is used for the intended purpose and also ensuring that every single penny on that loans is accounted for. If the borrower has a steady and reliable source of income they have committed that they will be able to repay the loan, its low interest rate and tax deductibility of paid interest makes it a sensible alternative. Fixed-rate home-equity loans can be used to help cover the cost of a single, large purchase, such a big new roof on your home or an unexpected medical bill.
The main problem of home equity loans is that they lead the borrower to sink further and further to loans. These loans propel a borrower into a perpetual cycle of spending, borrowing, spending and sinking deeper into debt.Always ensure that you check the various home equity loans available in your bank so as to ensure that you get the best deal and also good interest rates. Going through the different home equity loans being offered in the market helps you in making a very informed decision that they won’t regret.