Equity Loan: One-time Second Mortgage

2007-03-08 10:33:40

( Financial )



MORTGAGING YOUR MORTGAGE

An equity loan is a form of secured loan that is based on the value of your home that has been paid for or has equity. Equity loan is considered a second mortgage because it is a loan taken on top of your existing mortgage.

Home equity refers to the portion or value of your property that has been freed from mortgage. The equity or the value of the property that you have paid for will be used as security for an equity loan, and determines the maximum limit of the loan amount that will be available for you to borrow.

There are two types of financial services available that can be taken from your home equity. The first is the home equity line of credit or HELOC, and the second is the home equity loan.

EQUITY LOANS AND LINES

HELOC acts more like a credit card where you have a line of credit that you can draw from on an indefinite basis. The value of your line of credit is set by your home equity. A HELOC is used as a revolving fund from which you can draw again and again. The original credit line is refreshed as you pay off the principal.

A home equity loan on the other hand is a loan that you take at one single go. The loan is based on your equity and is given to you as a lump sum with a predetermined payment period and fixed equity loan interest rates. Under a home equity loan you may avail of the entire loan amount or borrow only a percentage of it. However once you have received the money, you cannot take out a loan anymore.

Because HELOCs are similar to credit cards, the equity line rates fluctuate over the loan’s lifespan as it responds to market changes. Equity loan meanwhile has fixed equity loan interest rates because it is a more straightforward and simple loan arrangement.


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