Home Equity Loans

There can be many good reasons for getting a home equity loan. One reason is that it is a great way of putting money back into perhaps your most secured investment, your home. A home equity loan is a great way of getting monies to perform major repairs or remodeling jobs to your home. If done wisely, this does not only improve the pleasure of your home, but its value as well. Major repairs or remodeling projects, such as a new roof or a new kitchen can increase the value of your home way above the cost of your loan. This can greatly increase the resale value of your home providing that other factors don’t keep or drag down the value of your home, such as the surrounding area or neighborhood.

Equity is what your home is worth over your first mortgage. You use the equity of your home as collateral, as a guarantee that you will pay back the lender the debt you owe or the lender can take your collateral, sell it, and get their money back.

There are two types of home equity loans. These loans are secondary loans, meaning that they are not the first principle loan/mortgage taken on your home. Most first mortgages are repaid over a 30 years. Home equity fixed loans and lines of credit are often referred to as second mortgages and are paid back at shorter lengths of time then the first mortgage often no more than a 15 year period.

The first type of home equity loan is a fixed rate loan that is given to the debtor as a onetime lump sum that is paid back over a predetermined length of time, usually 15 years, with a set payment predetermined by the lender.

The second type of home equity loan is offered as a revolving line of credit. Home equity lines of credit work much like a credit card that allows you to borrow a certain amount of money during the draw period, usually 5 to 10 years with a revolving balance. During that time you can borrow the money as you need it and as you pay down the principle you can borrow again on that line of credit. Home equity lines of credit or HELOC have revolving balance with variable interest rates that fluctuates over the life of the loan. With a home equity line of credit it is possible to remain in debt during the draw period by paying only the interest and not paying down the principal during the draw period. Repayment periods for HELOC’s are generally 10 to 15 years.

Note: With a second and/or third mortgage, home equity loans or lines of credit, you must pay of the balances when you sell your home.

Home improvement is perhaps one of the best reasons for a home equity loan. Why because it can be a high yield investment that is over and beyond the cost of your loan.

Often people take home equity loans for poor reasons that attack the security of one of their most secured investment, their home, to pay off unsecured debts – such as credit cards or to buy disposable items – such as vehicles, expensive electronics, dream vacations, etc… and recreating such problems rather than fixing them. Although it is often an attractive idea, it is very unwise to put your home at risk for things that lose value long before your home does.

Robert to the rescue.