What is a home equity loan? Home Equity Loan Explained

Equity in your How does home equity loan work? is the actual amount (value) that you, the owner, have invested in the property, relative to the actual market value of the home. A home equity loan is a loan against the equity in your home.

How does it work

Let’s say, for example, that the estimated market value of your home is $ 100,000 and your current mortgage balance is $ 80,000; equity in your home is set at $ 20,000. Most lenders will allow homeowners to borrow up to 80% of their home equity. However, a few will allow homeowners to borrow up to 100% of available capital.

Credit and income

Even with a large amount of equity in your home, you may not automatically qualify for a home equity credit loan. Loan providers generally require the owner to have excellent credit to obtain quality. Having a good payment history on your home, as well as increasing or at least maintaining your original income, will go a long way toward qualifying you for the home equity loan. Additionally, these factors will ensure that you get the best possible interest rate available to you.

How equity is built

Every payment you make toward the home mortgage balance decreases the total amount of the home mortgage and increases the amount of the home you actually own for free and clearly. If the house is appreciated in value, the amount of equity in the house also increases.

What can money be used for?

There are no restrictions on what the lump sum Home Equity Credit Loan payment can be used for [http://www.mortgage-bankloan.com/home-equity/what-is-a-home -equity-loan /]. The smartest solution for any homeowner with debts beyond their mortgages is to use the bank loan to pay off high-interest credit cards. The often scandalous interest paid on credit card balances is not a tax deductible payment; however, the interest paid on a mortgage and home equity loan is 100% tax deductible

The money from a home equity loan can also be used to make home improvements, buy a car, or buy a car.

Interest rate

As with a standard home mortgage, there are often interest rate options available for a home equity loan in the form of a fixed interest rate and an adjustable interest rate. Yours will be determined by the amount you are borrowing, the term of the loan, and your credit.


Please be aware that since your home is used as collateral for the loan, there is a good chance that you may risk losing your home if you do not meet the home equity loan; even if you are up to date with your original mortgage payments.

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