| Home equity is the difference between mortgages | | | | In Open end home equity loan the borrower get a |
| and the current market value. It has a zero rate of | | | | specified amount of the loan over a period of time. |
| return and is not liquid. In home equity loan the | | | | This specified period of time is called home equity line |
| borrower utilizes the equity as collateral. These loans | | | | of credit (HELOC) as the time period for this loan is not |
| are essentially advantageous as they are able to | | | | specified. However the lender sets a specific credit line |
| provide individuals with larger finances. In a home equity | | | | for the borrower based upon the equity in the |
| loan a lien (security interest that is laid against an item | | | | property. Similar to closed ended equity loan the |
| of property) is created with the borrower's house. | | | | person can get 100% of the value paying it back after |
| Home equity loans can be held by first, second and | | | | a specified period of time. The time period for this type |
| third positions deeds. But in order to get a good loan it | | | | of home equity loan is up to 30 years. The interest |
| is necessary to have a good credit history so as to | | | | rate can vary depending on the suitability of the loan |
| enable an individual to get a good value loan. | | | | as the borrower can base the rate of interest on the |
| Types of Home Equity loans | | | | prime rate or margin. |
| There are two types of equity loans: | | | | Advantages and disadvantages of home equity loans |
| · Closed end home equity loans | | | | Advantages of the home equity loans include:- |
| · Open end home equity loans | | | | · Home equity loans enable a borrower to take a |
| In closed end home equity loans an individual receives | | | | large sum of money which can help in debt |
| a large some of finance in just one loan. He/she is not | | | | consolidation |
| entitled to get any further loans after this sum has | | | | · The period of returning the loans is more flexible |
| been paid to the borrower. As the name suggest | | | | than other loan periods. |
| "Closed end" which means that the borrower doesn't | | | | · The home equity loan enables leads to |
| have a specified period of getting the loan, but just a | | | | decrease accumulation of debts. |
| particular time upon signing the agreement of the loan. | | | | There is only one disadvantage regarding equity home |
| The loan amount that an individual can get depends | | | | loans, which is people are not able to maintain a good |
| upon the credit history and the collateral of the person. | | | | credit history which might lead to further accumulation |
| These types of loans have a fix rate of amortization | | | | of debts. |
| and have to be paid up in the period of fifteen years. | | | | Therefore home equity loans are one of the easiest |
| Since the borrower has taken a large sum of loan he | | | | loans that borrowers can procure as it enables easy |
| has to return the sum at the end of the period which is | | | | payments in terms of the rate of interest. |
| also called balloon payment. | | | | |