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