These days, things are getting worse. Every day, it seems like it's more true that money doesn't grow on trees. Even though economists have been noticing progress, many people have gone bankrupt. As life goes on, needs seem to grow as the money needed to meet those needs seems to shrink. When this happens and people are worried about money, one option is to borrow money. When people are having money problems, they can take out different kinds of loans. One of the most common is a home equity loan.
As the name suggests, a home equity loan is a type of loan where the borrower puts up the equity in their home as collateral. Some people also call the home equity loan a second mortgage or an equity loan. When a family is in the middle of paying their mortgage and has a sudden need for money, they may have to borrow money again. People often use the money from the loan to pay medical bills, make major repairs to their homes, or pay for college.
Home equity loans are also called home equity lines of credit by some banks. This is because the amount of money a person gets from a loan is based on the difference between what their home is worth on the market right now and what they have in it. Some people see the home equity loan as a second chance for people who are having trouble paying their mortgage. If the home equity loan isn't paid off, the house could be sold to pay off the remaining debt or balance. Most home equity loans have lower interest rates and more flexibility than credit cards and regular second mortgages.
Most home equity loans are one of two types:
The closed-end home equity loan is a type of home equity loan in which the borrower gets a lump sum when the loan is approved but cannot get any more loans. With this type of home equity loan, the borrower can get up to the full value of the home, minus any liens. Closed-end home equity loans can have a 15-year amortisation period with a 3-, 5-, or 7-year balloon payment. When the balloon balance comes due, the borrower must either pay off the remaining balance or get a new loan.
The open home equity loan is a revolving credit, which means that the borrower can take out money more than once if they want to. With an open-home equity loan, you can also get the full value of the home as the loan. At a competitive variable interest rate, the amortisation period can last up to 30 years. With this kind of home equity loan, a person can pay as little as the interest due for the month.
Both closed and open home equity loans are called second mortgages because, like first mortgages, they are backed by the value of the property. Most of the time, the terms for home equity loans are shorter than those for regular mortgages. When the right arrangements are made, the interest on a home equity loan can be deducted from the borrower's personal income taxes.
Everyone needs money. It's a fact of life. When you run out of money, it can be very bad. There are a lot of ways to get money, and one of them is to get a home equity loan.
