What Are Home Equity Loans?What are home equity loans (HEL)? As the name suggest a home equity loan is a loan secured against the equity within a property, they are also known as second mortgages. The can be a good alternative to a re-mortgage if you wish to access equity without changing the terms of the original mortgage. Home equity loans can be used for anything you wish from education to medical expense or something as simple as going on holiday or buying a new car. Home equity loans generally require good to excellent credit history and good loan to value ratios. HEL’s come in two types. Closed end home equity loanThis is were the borrower receives the lump sum of the loan at the time of closing and cannot borrow any further. It is quite common to be able to borrow up to 100% of the equity in a property although in the United States state law varies. It is possible to borrow in excess of 100% in some states while less that 100% in others. Credit history will also factor in on this. These types of loans are typically fixed rate and for a period of 15 years.Open end home equity loanThis is a revolving line of credit usually up the value of the equity. Like the closed end loan the % you are able to borrow varies from states to state. Open ended loans are generally variable rate meaning the prime rate plus a margin added by the lender. They can also be for longer periods, up to 30 years.Home equity loan feesA number of fees can be applied to the loan such as*Title fees *Arrangement fees *Surveyor fees *Closing costs *Early pay off fees or penalties. Make sure that you check with your lender as to what you are being charged for before assuming the loan and as always shop around and seek professional advice as cost and benefit can vary greatly from lender to lender.
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