Home Equity Loan Requirements
It solely depends on the borrower how he plans to use the loan. Home Income Plans – This is used to generate monthly income. The loan will usually be invested in an annuity-based investment that pays your income plus the interest on the loan. Home Reversion Schemes – If you wish to remain in your home and need to supplement your regular income you can consider a home reversion scheme. Home equity loans can be useful for the elderly people too. They can release the equity in their home and can use the money to add-on to their pension. Home equity loans allow the elderly people to borrow the money at relatively low rate of interest and manageable monthly payments. With a home equity loan a borrower gets the option to take the loan in lump sum or through credit line. Under the lump sum scheme the entire loan amount will be given to the borrower at once and interest becomes payable on it immediately. A credit line or a line of credit option is popularly known as HELOC (Home Equity Line Of Credit). HELOC provides borrowers with the choice to borrow funds in the manner that they choose up to a maximum credit limit for which the borrower has qualified.
As foresaid the interest rate of the home equity loan is comparatively less than other loan types and in specific the standard equity loan interest is in fixed rate where as equity line of credit is in adjustable rate. Moreover the amount of interest rate will get tax deduction as per the government norms. Apart from the home equity loan mortgage loan refinancing is also associated with home equity. Home equity loan amount is preferred for any purpose since it is advantageous than any other loans. Generally home equity loan is availed for a wide variety of uses such as home improvement debt consolidation student loan and even for a holiday. The home equity loan is most advantageous for the bad credit people. It is difficult for the bad credit people to avail any kind of loan as the standard eligibility criteria do not support them.
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What Kinds of Home Equity Loans are Available? A home equity line of credit (HELOC) or home line of credit is a variable rate loan. Monthly payments vary according to the interest rate which corresponds to the prime rate set by the Federal Reserve Bank. With a HELOC homeowners are pre-approved for a specific amount of money and use the loan like a line of credit withdrawing cash as it is needed. Interest rates (and monthly payments) often start off low but eventually end up rising. In contrast a home equity loan offers homeowners a lump sum payment with a fixed interest rate and loan terms ranging from 5 to 15 years. Homeowners pay the same amount of money every month for the duration of the loan. Both are considered second mortgages and as with a conventional mortgage loan both home equity loans and home equity lines of credit have closing costs associated with them.
The fixed rate home equity loan is typically secured by either a first or second mortgage and the loan can be granted for up to several years or more. First Horizon Home Loans in Memphis Tenn. describes fixed rate mortgages as "featuring an unchanging interest rate which is determined when you are approved for a mortgage and remains the same for the term of the loan." Remember too that there are fees involved for establishing a home equity loan so take that into consideration before making a final decision on a loan overall. The most important factor a person should take into consideration when choosing a loan program whether it be an equity line of credit a fixed rate home equity loan or something in between depends on your financial portfolio how you believe your finances will change within the next five years how long you plan to keep the house you are currently living in and how secure you feel with changing your mortgage payments and increasing your debt. Do you feel more secure with the knowledge that your payments will be the same amount every month for a set number of years (fixed rate home equity loan) or that the amount can fluctuate based on interest rates and how much you borrow within your window of opportunity (equity line of credit). Either way before securing a loan talk to a financial advisor and determine all your options before making a final decision.