| Home equity loans are perfect for homeowners | | | | $35,000 owed on a property valued at $60,000 |
| who need money for home repairs, paying off | | | | has an equity of $25,000. Thus, the owner of this |
| credit cards, or paying for a child's education. | | | | property may obtain a loan for up to $25,000. |
| Home equity loans allow homeowners to borrow | | | | The money borrowed can be used to start a |
| money using their home's equity as security or | | | | business or pay the balance on credit cards and |
| collateral. These loans are different from | | | | student loans. Of course, home equity loans must |
| refinancing a home. Refinances create a new | | | | be repaid. Therefore, borrowers should be able to |
| mortgage, and homeowners are subjected to high | | | | handle an additional monthly payment. Defaulting |
| closing costs and other fees. | | | | on a first or second mortgage has serious |
| Benefits of Home Equity Loans | | | | consequences. |
| Home equity loans are an attractive alternative | | | | Refinancing Home Equity Loans |
| because the process is much quicker than | | | | Unfortunately, home equity loans carry a higher |
| refinancing. On average, homeowners receive | | | | interest rate. In some cases, homeowners may |
| funds within a week. Furthermore, fees are | | | | also receive an adjustable rate. Adjustable rates |
| minimal. Those who refinance their home to | | | | are risky because the interest rate may rise |
| receive cash-out at closing can expect to pay | | | | throughout the duration of the loan. Individuals in |
| thousands of dollars in closing costs. On the other | | | | this situation may consider refinancing their home |
| hand, refinancing is a great option for individuals | | | | equity loan. Refinancing a home equity loan |
| who purchased their homes when interest rates | | | | creates a new mortgage which combines the |
| were high. | | | | original loan amount and the second mortgage. |
| How Does a Home Equity Loan Work? | | | | Thus, instead of making two monthly payments |
| When a person acquires a home equity loan, the | | | | for a $35,000 first mortgage and a $25,000 |
| money borrowed is based on their home's equity. | | | | second mortgage, homeowners will make a single |
| Equity is the difference between a home's worth | | | | monthly payment for a new mortgage of |
| and the amount owed to the lender. For example, | | | | $60,000. |