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Three Types of Home Equity Loans
from: Maxx Home GuidesHome equity loans are usually applied for by homeowners who require a substantial amount of money and they're able to do this because the loan is backed up using their home's equity. This is popular because the interest is tax deductible, interest rates are usually lower than any other type of loans, and they're relatively easy to obtain. Before deciding on what type of equity loan to choose, you should understand which type is going to be best for you.
Your can obtain three different types of home equity loans:
* Refinancing your first mortgage by increasing the balance to include a portion of your accumulated equity for debt consolidation, or a high ticket item purchase.
* You can also decide to add the home equity loan while leaving your first mortgage in place, or
* By obtaining a home equity line of credit.
You can choose a home equity loans type based on your specific situation. Each of the three types of home equity loans are Refinancing, a Home Equity Loan, and home equity line of credit, or HELOC.
Refinancing is shifting your debt from other debts with different interest rates, monthly payments and due dates to one loan at a lower interest rate that has a fixed repayment term. Along with being able to consolidate all of your payments, you're also creating a tax benefit.
A Home Equity Loans, is actually a second mortgage that has a fixed amount that is paid off during a specific term, usually 5 - 30 years. You'll receive a one-time disbursment of the loan and once it's received, you cann't borrow additional funds against the loan.
On the other hand, a home equity line of credit, or HELOC, is similar to a bank account or credit card that allows you continue writing checks against the equity of your home. HELOCs don't have a fixed period repayment schedule since you can continue to borrow against it and pay back, similar to a credit card. Thes lines of credit are popular with borrowers who need to use the funds on an ongoing basis. HELOC's usually carry a higher interest rates, but many lenders will offer a lower rate to a borrower with a good credit history.
Home equity loans using your property as colateral turn equity into cash, providing funds for home improvement projects, or funding a college education, or other expenses. Most people's most valuable asset is their home and so money borrowed in this manner should only be spent for important purchases and not for every day expenses.
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