Home Equity Loan

What is a Home Equity Loan? Can you get one? Do you want one?

A Home Equity Loan or Home Equity Line of Credit (HELOC) is a loan secured by the equity value in your home. The property is the security for the loan, which is usable for any purpose. A home equity loan creates a lien against your house and reduces actual home equity.

There is a specific difference between a home equity loan and a Home Equity Line of Credit (HELOC). A HELOC is a line of revolving credit based on the equity in your home and has an adjustable interest rate. You will be charged monthly based on how much available credit you have used, whereas a home equity loan is a one time lump-sum loan, often with a fixed interest rate and a regular monthly payment amount.

Why use a Home Equity Loan or a HELOC rather than a credit card for larger expenses?

If you carry a credit card balance, you cannot deduct the interest you pay which can cost as much as 18% to 22%. On the other hand, equity loan interest is often much less and it is deductible. For many home owners, it makes sense to pay off credit card debt with a home equity loan.

You can borrow against a home’s equity for a variety of reasons such as home improvement, college, medical expenses or starting a new business. Some state laws restrict home equity loans so check your state’s requirements or ask your loan officer.

Will there be fees when you get the loan?

Here is a list of possible fees that may apply to your home equity loan: Appraisal fees, originator fees, title fees, stamp duties, arrangement fees, closing fees, early pay-off and other costs are often included. Surveyor and conveyor or valuation fees may also apply to loans. The title charges in secondary mortgages or equity loans are often fees for renewing the title information.

Most loans will have fees of some sort, so make sure you read and ask several questions about the fees that are charged.

Know the facts, get all the numbers then decide which plan works best for your needs.