What is Home Equity Loan?
A home equity loan is a form of ‘consumer debt’ that allows homeowners to avail loans against the equity in their residence. This equity is kept as the collateral to avail the loan. This type of loan can be accessed against both residential and non-residential property. It is also termed a second mortgage, a home-equity installment loan, or an equity loan. The amount for the loan is calculated based on the current market value of the property. To avail of this type of debt, one should have an outstanding credit history with considerable individual loan-to-value ratio and combined loan-to-value (CLTV) ratios.
The home equity loan is a way of incrementing the value of your home without the need to sell it. When you make repayments on your home loan and with time the value of your home appreciates, the ownership of your house equivalently grows. This ownership is actually your equity, which can be converted into debt (cash exchange) by availing the home equity loan.
Geeky Takeaways:
- Definition: A home equity loan is a type of consumer debt which is also known as a second mortgage, home-equity installment loan or an equity loan.
- Measurement: The value of the home equity loan is measured on the difference between the current market value of the house and the owner’s remaining mortgage payment.
- Types: There are two types of home equity loans: Fixed-rate loans and Home Equity lines of credit (HELOCs). Fixed-rate loans provides a fixed amount during the term of loan while HELOCs are flexible loans offering payments depending on the financial situation.
- Benefit: Home equity loans offers the owners of house to borrow against the equity they possess. It can be used when faced with a financial turmoil that threatens the livelihood.
Table of Content
- How a Home Equity Loan Work?
- Advantages of Home Equity Loan
- Disadvantages of Home Equity Loan
- Home Equity Loan Rates in 2024
- Home Equity Loan Requirements
- How Much can you Borrow with a Home Equity Loan?
- What can you use a Home Equity Loan for?
- Home Equity Loans vs. HELOCs
- FAQs