This Type Is Also Known As Open End Home Equity Loan

Category: Finance.

Home Equity Loan in terms of common man is, by using an individuals home he can borrow money. It has been understood that the individual has to repay the debt within a time frame, and if he fails to do so the money lender can sell the collateral and take his money back.

In this case the property is used as a collateral guarantee for the money received. So, in this case the equity in the home is used as collateral. If the loan amount has been paid, in full then the property will be the buyers. If the debt has not been paid the concerned party will be forced to lose his home. Equity can be explained as the difference between the worth of the home and how much loan exists on the mortgage and the banks will lend money against the equity only. Home Equity loan can be classified into two different types as, Traditional Home Equity Loan and Home Equity Line of Credit and these are also known as second mortgages, as they are safe by the security of property.

This type of loan is taken for the purpose of major home repairs or improvements, wedding expenses, education expenses, medical expenses etc. These types of loans are returned in a short span of time than the first mortgage. In this type, the interest will start to accumulate immediately after the money has been given. Traditional Home Equity Loan is also known as closed end home equity loan which means the money borrowed must be returned or repaid within a predetermined period. And at the time of closing a lump amount of money can be borrowed and will not be able to get further amount. For this type of loan they have a specific period say up to fifteen years. The loan amount will be determined by analyzing the credit history, income and value of the collateral.

Home Equity line of credit will offer the borrower a cheque book or a credit card which can be made used to borrow money against the home equity when and how often the concerned party requires the amount. This type is also known as open end home equity loan. Until a purchase is made against the equity the interest will not begin to accumulate. The period fixed generally to repay the loan is over thirty years at a varied interest rate. In some cases, some of them may be ignored. Generally home equity loans have some specific fees and some of them are Evaluation fees, Stamp Duties, Inventor fees, Concluding fees, early pay, Arrangement fees- off, Surveyor or Conveyor or valuation. This can be increased or decreased if the concerned party has his personal surveyor to examine the property.

This type of loan helps in tax savings because the interest paid against the home equity loan is tax- deductible. The fees differ from loan to loan so that the parties concerned must have a clear picture in the beginning itself.

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