Home equity loan will be the most preferred fiscal instrument to meet your financial requirements. It is certain that we may come across several financial necessities such as home improvements, education, meeting medical expenses, or consolidation of the debts. If you are the owner of a home, you can directly step in to any lender for the financial assistance and the home ownership acts as the blank check to obtain the loan. Home equity means the actual ownership you posses in the home, despite of the mortgage loan. The equity in the home can be used in different modes, and based on it home equity loan is categorized into several types.
Home equity loan is mainly classified into three types namely closed home equity loan, home equity line of credit (HELOC) and mortgage refinancing. Irrespective of the different types, the equity loans posses all the advantages of a characteristic secured equity loan. The home equity loan is pronounced over other loans mainly because of the tax benefits that you can enjoy in the interest payment. The risk free nature of the secured loan helps to avail maximum benefits from the lenders. The lenders will provide the maximum amount, in the minimum rate based on the appraisal of the home. However, the difference in the types of loan is mainly distinguished in the interest rates and method of payment.
Home equity closed loan is the most popular type of home equity loan. In this type of home equity loan, the approved loan amount is provided in lump sum to you. The interest rates will be fixed and you will have to repay the loan amount in fixed interest rate for the particular period. You can avail the repayment schedule to a maximum of 30 years. However, low repayment schedule is preferred since it will lower your expenditure for the long term interest payment.
The home equity line of credit (HELOC) loan will be appreciated, if you require money intermittently. In this type of loan the lenders will transfer the approved loan amount of loan to an account and you can avail the money as you require. The major benefit of this type of equity is the flexibility and the user is free to avail money, at any time during the prescribed period. You have to repay the interest for only the amount you have withdrawn from the account, and if you wish the principal amount can also be repaid and build up a revolving credit. However, you have to close the account within the prescribed period of time. The major disadvantage of HELOC is its adjustable interest rates, which will result in the change in the amount of payments, periodically.
Home equity refinancing is the other type of home equity loan. It is a first mortgage loan whereas home equity closed loan and HELOC are second mortgages. In the refinancing, the first mortgage is refinanced for better rates and amount. It is advised when you do not have much equity in the home. The refinancing will be beneficial when your home appraisal value is higher than the first mortgage. However, the origination fees have to be considered, while refinancing.
In a glance, all the three types of home equity loans seem to be more or less similar in its benefits. The appropriate loan has to selected based on the evaluation of the individual circumstance of the borrowers.