equity loans

A Guide To Understanding Equity Loans

Loans that are provided based on mortgage on a piece of real estate owned by you are termed as equity loans. If the property owned by you doesn’t have an existing ‘lien’ on it, you are permitted to take an equity loan. A ‘lien’ is termed as security that is obtained by the lender over the repayment of the loan. If you are not able to meet the conditions of the loan, the lender by agreement has right to seize the security placed. If the ‘lien’ is placed on real estate it is termed as equity loans.

If no existing ‘lien’ is enforced on the property that is owned by you, then you can take an equity loan against it. For example, consider a house that is worth 500,000$. If no existing ‘lien’ is there against the house, the owner can take an equity loan to the tune of 80% of the value. That is 80% of 500,000$, which amounts to around 400,000$. The interest for this amount is to be paid monthly. The interest rates for equity loans are much lower than that of credit cards loans, the reasoning being that equity loans are provided against some property whereas credit card loans are provided without any security cover for the lender.

Equity loans against homes require excellent credit history. Home equity loans abbreviated as HEL are divided into two categories:-

Closed end – The amount that can be borrowed against your home is fixed and there are no provisions for borrowing an additional amount. The home owner can borrow 100% of the appraised value of the property. Some lenders even lend an amount that exceeds the appraised value of the house.

Open end – Here the home owner can decide on when he wants to borrow and the amount he wants to borrow each time.

Equity Loans