All You Need to Know About Home Equity Loan
Many confuse Home Equity Loan with Home Equity Line of Credit (HELOC). Home Equity is a lump sum you borrow against your own stake, while HELOC is more like an access to a limited amount of credit which you can borrow and pay off periodically, much like a credit card. In a Home Equity Loan you use the equity value of your home as collateral, and to determine the value of the property one needs to get his / her home appraised.
How Much Home Equity Loan Can You Borrow?
Generally 80% value of the available home equity is eligible to be given out to as loan, but the loan amount also depends upon the borrower’s credit score and payment history.
How is Home Equity Loan different from a Regular Mortgage?
A regular mortgage is when you borrow to purchase a home. Home equity loan, is when you borrow on a part of what you own already. In a regular mortgage, buying the property is your primary motive, while in a Home Equity Loan, your primary purpose to borrow could be a personal expenditure or home renovation or such other expenses.
Is Reverse Mortgage a Better Option than borrowing on Home Equity?
Reverse Mortgage is relatively costlier. Reverse mortgage is to be paid off only at the time of resale, till which the interest gets accumulating. Amount in Home Equity is received as a lump sum and is repaid as an amortizing loan.
- You Can Sell while on loan
- You Can Use the Amount to fully finance a Second Home
- You can avail finance quickly
- Provides opportunity in times of lowering interest rates or rising property rates
- You can avail tax benefits on the interest paid towards Home Equity Loans