Understanding home equity loans can be a bit confusing. Fear not my friend, we have put together an easy infographic that covers the basics.
What exactly is a home equity loan?
A home equity loan is a loan amount that is fixed and is secured by residential property which is most commonly with a fixed interest rate and fixed monthly principal payments. It is a second mortgage used in addition to an existing mortgage when the borrower doesn’t want to refinance or pay off the existing mortgage.
Home Equity Loans are less common today as Home Equity Line of Credit (HELOC) has become very popular. The Home Equity Loan amount will depend upon the borrower’s qualifications and the amount of existing equity. Most of the home equity loans allow the borrower to obtain loans up to 80% of the property’s value less any outstanding mortgage balance. For example, a qualified borrower with a qualifying property appraised at $400,000 with an existing mortgage of $270,000 may obtain a home equity loan of $50,000 ($400,000 x 80% – $270,000 = $50,000). Some creditors may even allow the qualified borrowers to obtain up to 90% of the home’s appraised value. The term, or length, the loan can be between 10 years and 30 years with the most common being 10 year and 15 year terms.