A home equity loan is money borrowed by a homeowner and paid back with interest over a period of time. The amount of time to repay the loan is usually much shorter than the mortgage loan that was obtained to purchase the home. This will depend on the amount borrowed. Mortgages are usually paid over 30 years. Average home equity loans are paid over 15 years or less.
What is Equity?
Equity is what a home is worth when the amount that is owed is subtracted from the estimated market value. When the down payment is made, this is immediate equity. After that every payment that is made reduces the amount owed and the equity increases. The largest part of the payment is interest on the loan. The rest of the payment goes toward the principal or amount owed on the loan. One way of increasing equity more rapidly is to finance the home for 15 years rather than the typical 30.
Equity Loan Benefits
Money needed for virtually anything can be obtained with an equity loan. Since the loan is secured by the value of the home, many lenders will provide a home equity loan even to those who have less than perfect credit. 7 Day Loan Service is one example of a company that helps people get a loan with bad credit california. Other types of loans as well as credit cards are often more difficult to get with bad credit than home equity loans, and they usually charge higher interest rates.
Uses for the Home Equity Loan
It usually does not matter what the borrower needs money for when applying for a home equity loan. It could be for a repair that is needed or to consolidate the amounts owed on credit cards. A vacation, money for a major purchase, or to make improvements on the home are all reasons people choose equity loans. When making certain types of improvements to the home, this can raise the amount of the equity a homeowner has because it increases the overall value.
An equity loan can help to save money when used wisely. For example, a borrower is making a high car payment. A home equity loan is obtained and the car is paid off with this money. The amount of the home equity loan will generally be far less than the car payment leaving the homeowner with more cash each month.