A home equity loan is a 2nd lien (or 3rd, etc) against the equity (market value – mortgage balance = equity) in your home.
It is a mortgage, but (most times) in a different form.
Frequently, HELOCs (home equity line of credit) is a loan which operates like a credit card. You may charge $ to the account and you must pay it back at certain interest rate (usually Prime Rate + margin), and often the minimum payment is INTEREST ONLY.
These loans are GREAT when the value of your house goes up, and BAD when it drops.
These are high risk loans today, because home prices are dropping. To get one, you must have lots of equity and high credit scores and make lots of income.
There are like lines of credit which draw against your homes equity. So you are given a book of checks you can use when you want. However, this type of loan is a big NO NO in Suze Orman’s world. She says you should not use your homes equity like your personal bank. Why do you think so many people are upside down in their loans today? They pulled all the equity out and not values have declined. ooops!
Simple, you are basically taking out a Credit Card on your home. Say you bought the house for 100g 10yrs ago and your home is now valued at 150g. The lender will now supply you with a credit of 50g. You renege on that loan and they could repo your home. Your best bet is to refinance the house and take the loan out for 150g taking the remainder 50g and doing what you want with it. Remember that you have to pay that money back.
Best of luck
There is a difference between Home Equity Loan (i will call it HEL…:) and Home Equity Line Of Credit (HELOC).
With a HEL loan you usually have a fixed rate and payment, you receive the entire amount you borrow up front and you can only draw money once (much more like a regular loan).
With a HELOC you usually have a variable interest rate and your payments may be lower than HEL, you also draw the money as you need it, pay it back and borrow it again just as you do with a credit card.
No matter which one you choose the money is borrowed against your home’s equity so you must have some equity built up on your home to start with in order to qualify.
So which one of these two is right for you? well that’s up to you to decide, good luck!
David Beasley Says:
A home equity loan is a 2nd lien (or 3rd, etc) against the equity (market value – mortgage balance = equity) in your home.
It is a mortgage, but (most times) in a different form.
Frequently, HELOCs (home equity line of credit) is a loan which operates like a credit card. You may charge $ to the account and you must pay it back at certain interest rate (usually Prime Rate + margin), and often the minimum payment is INTEREST ONLY.
These loans are GREAT when the value of your house goes up, and BAD when it drops.
These are high risk loans today, because home prices are dropping. To get one, you must have lots of equity and high credit scores and make lots of income.
Best of luck to you!
alterfemego Says:
There are like lines of credit which draw against your homes equity. So you are given a book of checks you can use when you want. However, this type of loan is a big NO NO in Suze Orman’s world. She says you should not use your homes equity like your personal bank. Why do you think so many people are upside down in their loans today? They pulled all the equity out and not values have declined. ooops!
Classy chick Says:
Simple, you are basically taking out a Credit Card on your home. Say you bought the house for 100g 10yrs ago and your home is now valued at 150g. The lender will now supply you with a credit of 50g. You renege on that loan and they could repo your home. Your best bet is to refinance the house and take the loan out for 150g taking the remainder 50g and doing what you want with it. Remember that you have to pay that money back.
Best of luck
The One Says:
Simply put: If you owe 85k on home, it appraises at 100k, you have 15k equity. The most you can borrow 15k.
slipperypickle Says:
There is a difference between Home Equity Loan (i will call it HEL…:) and Home Equity Line Of Credit (HELOC).
With a HEL loan you usually have a fixed rate and payment, you receive the entire amount you borrow up front and you can only draw money once (much more like a regular loan).
With a HELOC you usually have a variable interest rate and your payments may be lower than HEL, you also draw the money as you need it, pay it back and borrow it again just as you do with a credit card.
No matter which one you choose the money is borrowed against your home’s equity so you must have some equity built up on your home to start with in order to qualify.
So which one of these two is right for you? well that’s up to you to decide, good luck!