In various forms is how home equity loans are offered as and this includes credit lines. When it comes to an equity loan, it?s often used to reduce interest on credit card debts, pay off debts, pay tuition fees, etc. and is offered in one large sum to the borrower. For a number of years, a credit line can be offered, often in amounts limited by the lender allows the borrower to use the credit for any purpose. As repayments are made, the line of credit opens up again and the borrower can withdraw funds for a different purpose.
The interest on credit lines is usually calculated at the Prime rate, and are not based on fixed intervals. Higher interest rates could be paid unlike with a home equity loan. Often at a fixed interest rate are home equity loans and they provide more protection to the borrower.
Based on the equity of your home is where an equity an equity loan is calculated. You may pay higher interest rates and therefore higher repayments if your home is not worth the amount you?ve applied to borrow. This is called negative equity and it?s a higher risk. An evaluation from a surveyor may be required before you apply for the loan and the equity is also determined by current market value.
The lender wants to be assured that repayments can be made which is why a home equity loan also takes into consideration the borrower?s salary. Some lenders are less strict on this factor, but it is important that the borrower is sure they can cover the repayments before they consider a home equity loan.
Your home equity loan may require a 5 to 10% deposit, which can help to reduce interest rates and mortgage payments. Intended to pay off your first mortgage then the new loan is equity loan even though 100% loan will incorporate all costs like additional fees in purchasing a home. You don?t have to have available cash because these loans include the deposit. The interest may be higher on 100% loans too.
Find out from lenders what the disadvantages and benefits are and consider which type of loan will suit your ability to repay the loan before considering a credit line or home equity loan. Offered by different financial institutions are different loan packages which have other benefits and varying interest rates. Shopping around and making sure you get the best deal is what you need to do before you sign on the dotted line.
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Tags: credit, Credit and Loans, equity loans, finance, Finance and Credit, financial planning, loans, Mortgage and Loans, personal finance
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Source: http://www.einsurancearticles.com/2011/05/what-you-need-to-know-about-equity-loans/
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