Home equity lending is how many property owners borrow funds to pay for all sorts of expenses. It’s used to update their homes, repair damaged areas and pay for their children’s college.
There aren’t a lot of restrictions on what you can do with the equity loan you receive. And this makes it a very attractive option to those needing extra money in their pocket.
If you’re considering obtaining equity lending, then there are key things you should know first. Let’s review.
What is Home Equity Lending?
A home equity loan, also known as HEL, is money you can borrow against the value of your home. You use your property as collateral to obtain funding. And the amount you receive is based on the value of your property.
An appraiser is used to determine the value of your house, along with the current equity.
Now, there are two types of home equity loans – adjustable-rate and fixed-rate loans. You also receive a time frame to repay the debt, which is normally between 5 and 30 years.
If you’re worried about closing costs, you’ll be happy to know it’s a lot less than it is for a usual full mortgage.
If you like having a predictable monthly rate, then fixed-rate HELs are ideal.
What Are Equity Loans Used for?
It can be tempting to apply for equity lending just to have money in your pocket. But this will only put you into debt for no reason. Most borrowers seek out these loans to pay for a single large expense. For instance, a kitchen remodeling project.
It’s best to borrow for similar reasons – not to borrow a small amount of money. The smallest you’ll typically get from an equity lender is around $10,000. Other lenders won’t lend less than $25,000.
What is HELOC?
HELOC stands for home equity line of credit. It’s a lender-set revolving line of credit that’s based on the equity in your home. Once the lender determines the equity of your property, you can draw from that line of credit.
For instance, if your home equity is $50,000, you can borrow anywhere between $10,000 and $50,000. It’s much like a credit card. You pay back what you borrow in full and then you can borrow the full equity again.
You normally have about 10 years to repay whatever you borrow. But some loans can be as long as 20 years, depending on the amount. The interest is only added to the amount you borrow. After the draw period closes, you’ll have to begin repayment.
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