Home equity is the percentage of the home that you actually own. It is the difference between the current value of the home and the amount you still owe on your mortgage. There are two types of home equity debt: Home Equity Loans and Home Equity Lines of Credit, or HELOCs.
Home Equity Loans
In a home equity loan you receive the entire loan amount upfront – all at once. The monthly payments are predictable and consistent Under the home equity line of credit you can use your available credit anytime during the draw period, you will have the option of paying low interest only on the funds you use, and your principal comes down only when you make voluntary principal payments during the interest-only period.
Home equity loans and lines of credit are usually repaid in a shorter period than first mortgages. Usually mortgages are set up to be repaid over 30 years, while equity loans and lines of credit often have a repayment period of 15 years. It could be as short as five and as long as 30 years.
Home equity loans are found to be attractive because:
- They carry a lower interest rate. The rate is lower than that applied to unsecured loans like credit card debt
- They are easier to qualify for
- Payments on home equity loans are tax deductible
Five ways to get the best deals on home equity loans
There are many ways to get the best deals on home equity loans. The trick lies in choosing the best deals out of them. The following tips will help in choosing the best deals on home equity loans:
- Check out various options available by shopping around. Try banks and brokers.
- Try credit unions
- Manage your credit score within acceptable limits and make sure your credit reports are accurate.
- Make use of you network of friends and family who may recommend a suitable lender.
- Compare your offers with those available on websites and advertisements.
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