Pay Of Mortgage with Home Equity Loan
| Own home is not only an asset, but can also be used to raise cash in dire situations. Home equity value could be explained as the difference between the actual cost of the property in the market and the loan amount existing as mortgage debt on the home. Home equity keeps on increasing as real estate prices in the surroundings keep escalating. |
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This equity can be utilized as a credit for borrowing money. This process of obtaining a credit utilizing home equity value could be termed as a home equity debt.
There are two types of home equity debts that include home equity loans and home equity lines of credit (HELOC). Both the loans are second mortgage loans that can be taken based on the home equity value of the existing home. This equity is used as collateral for borrowing money. This money can be utilized for the purpose of paying for home improvement, debt consolidation or college expenses.
A home equity loan is a fixed-interest rate mortgage loan that has a 15-year or a 30-year repayment period. The interest rates on these types of loans are low and are determined based on the home equity. The entire debt amount is paid to the borrower at one time and is not entitled to avail any further loan on the existing equity. The loan has to be repaid in equated monthly mortgage payments.
Home equity line of credit is a more flexible way of borrowing and operates more like a credit card. In this type of credit system, the lender approves a certain money limit up to which the borrower can borrow. However, the borrower has the flexibility to take the loan amount in parts depending on his requirements. Once the credit amount is repaid, the borrower can again take the credit. Apart from emergency finances and variable interest rates, another advantage that HELOC offers is flexible mode of payment. The borrower could opt for paying the entire amount including the principal and interest. Or else, the borrower could remain in debt by paying only the interest.
Home equity loans must be repaid earlier than the first mortgages. If the first mortgage is for a 30-year term, the second mortgage has to be repaid in a lesser period of time.
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