Home Equity Loan The Basics

Home equity loans:

A home equity loan is a fixed amount of money given to you over a fixed period of time, usually with a fixed interest rate. Fixed being the keyword! Traditionally this is like a second mortgage because you use the equity in your first house to secure this one-time lump sum of money. The payments will be regular and the interest rate is generally low, but usually not as low as a HELOC.

These are generally used for Home renovation if the exact cost is known, because the interest rate is so low. They are also commonly used for debt consolidation, by paying off all your smaller debts with higher interest rates and putting your debt into a home equity loan with regular and low interest payments. This usually generates huge savings.

How much can I borrow?

Usually if the amount you wish to borrow is above $25,000, you can usually borrow up to 80% of what your house's market value minus what you owe. For example if your house is worth $200,000 and you still have a mortgage of $100,000 to pay off, you would use the following calculation:

$200,000 * 0.8 = $160,000

$160,000 - $100,000 = $60,000

You can borrow up to $60,000 dollars in theory. The lender will take other factors into account such as your ability to repay the loan. This will be determined by your income, other financial obligations, debt, and previous credit history.

If you want to borrow below $25,000 you can usually get the loan if you have $25,000 in equity.

Fees:

An Appraisal fee. An independent valuation of what your house is worth is needed to establish how much equity you have in your house. Usually around $200USD.

An application cost. This may not be refunded if your request for credit is denied. May also include property appraisal costs and credit report costs.

Closure costs which may include fees for attorneys, mortgage preparation, and filing property, title insurance, and taxes.

You may also have to pay transaction fees for every time you withdrawn money from your line of credit and possibly an annual membership fee.

This article is owned by http://www.use-your-equity.com and written by John Whiteside. Learn more about real estate investing, and how to create and use the equity in your home! The original article can be found at http://www.use-your-equity.com/HomeEquityLoan.html

Related Articles