Deciding on a home equity loan is a big decision in a home owners life. It is imperative to research all lenders and options before deciding on a loan. A home equity loan is a one-time lump sum that is paid off over a set amount of time, with a fixed interest rate and the same payments each month. A home equity loan allows you to borrow money using your home’s equity as collateral. There are three ways to access the equity in your home, through a second mortgage, a home equity line of credit (HELOC) or through a cash out refinance loan. The money from any home equity loan program you select can be used for home improvements, weddings, credit card debt consolidation, college education or other large expenses.
When chosing a home equity loan it is good to think about the differences between the three options. One of the most common question potential loan consumers ask about home equity loans is, “Are home equity loans and second mortgages two names for the same thing?”
The answer is yes. A Home equity line of credit has several differences, however. A home equity loan being a one-time lump sum that is paid off over a set amount of time, with a fixed interest rate and the same payments each month.
The only thing that can make this confusing is when you decided to refinance your first mortgage and pull cash out at the same time. This commonly referred to as a cash out refinance. While traditional home equity loans are usually repaid in a shorter period ,15 years, if you decide to do a cash out refinance you could be paying for another 30 years. But there are options for all of these programs that run from 5-30 years.
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