7 Key Terms that Homeowners Should Know When Considering a Home Equity Loan

A home equity loan offers you a lot of potential and it's well worth considering when you need cash for remodeling or other projects. There are a number of different terms that you'll need to understand when considering a home equity loan, however. These secured liens are very powerful and cost-effective when taken out at the right time. Whether you are seeking a home equity mortgage with a fixed interest rate or a line of credit that has a variable interest connected to the prime index, we can help you understand everything you need to help you find the right financing tool.

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Talk to lenders and brokers that offer the most comprehensive equity loan options in the market-place.

Here are 7 of the big ones.

  1. Home Equity – The equity in your home is what these loans will be based on. Essentially, home equity is nothing more than the difference between what you owe on your mortgage and what your home is worth. For instance, if you owe $100,000 and your home is valued at $200,000, you have $100,000 in home equity. This has a major influence on your ability to get an equity home loan and on what kind of loan amount you can secure.
  2. 2nd Mortgage – A second mortgage is exactly what a home equity loan is. It's a subsequent mortgage you take out on your home, using your home as collateral. You'll still have to pay your first mortgage each month, and will now have an additional mortgage to pay as well. However, most monthly payments for 2nd mortgages are a good bit lower since the loan amount isn't usually as high.
  3. Credit Score – You probably already know what a credit score is, but it's so important that it needs a closer look anyway. Your credit score is the number that lenders use to determine how much of a risk you are when borrowing money. The higher it is, the better your interest rates and terms.
  4. Open Ended Loan – An open ended loan is a kind of home equity loan that differs from what most are used to when they hear the term. A home equity line of credit is a perfect example of this – you're given a total loan amount, but not that sum. You then withdraw or use the loan amount as you need it, much like a credit card. In this way you only end up paying interest on what you're using. In standard closed-end loans, you're simply given the lump sum of money and then begin repaying it each month.
  5. Loan to Value – Loan to value is the ratio between the value of your home and the loan amount you're taking out. As mentioned above, your loan amount is usually directly based on the value of your home and what you owe on it. You can sometimes borrow more, however. For a high LTV equity loan you'll need a credit score of about 680. For lower LTV loans – about 80% loan to value – 620 or 640 could be all you need.
  6. Adjustable Rate – An adjustable rate is an interest rate that doesn't stay steady. It can increase or decrease depending on the month or the quarter. This can cause your monthly payments to change frequently and substantially. Usually, a fixed rate is preferable but there are some cases where an adjustable one is acceptable.
  7. Fixed Rate – Fixed rate loans are the standard by which most loans are judged. With these loans, you lock in the interest rate for the duration of the loan, which in turn locks in the monthly payments you'll be responsible for.

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Home Equity Loan Programs: 80-100%
Several Equity Loan Options to Consider:

1. Loans with Fixed Monthly Payments
2. Cash Back Opportunities
3. Loan Amounts from $10,000 to $1,000,000

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