Home Equity Loan Comparison – Are All Home Equity Loans The Same?

Home Equity Loans are ideal for getting quick cash for debt consolidation, home improvements, etc. Homeowners can get loan approvals much faster than non-homeowners. Due to rising home values, many homes have gained a significant amount of equity. Therefore, the owners can take advantage of this capital and access additional funds.

What are home equity loans?

Home equity loans are similar to other types of loans offered by banks, credit unions, and other financial institutions. The only difference is that a home equity loan uses your property as collateral. Also, home equity loans are based primarily on the amount of equity you have purchased in your home.

For example, if the original mortgage amount was $200,000 and the amount owed to the mortgage company is $130,000, the home has acquired $70,000 in equity. Therefore, homeowners can obtain a home equity loan up to this amount. The money can be used for any purpose, such as building cash savings, paying down debt, or establishing a college fund.

Different types of home equity loans

Homeowners can select one of two different types of home equity loans. One type of home equity loan is a second mortgage. When homeowners take out a second mortgage, they receive a lump sum of money from the lender. In turn, the property earns a second bonus.

Similar to first mortgages, homeowners are required to make monthly payments to the second lien holder. Because second mortgages are generally smaller than the initial mortgage, the payments are considerably lower.

Homeowners also have the option of applying for a home equity line of credit. This type of home equity loan offers flexibility. Instead of receiving a lump sum, homeowners gain access to an open line of credit. Over an average period of ten years, owners can withdraw funds as needed. Unlike second mortgages, lines of credit do not have fixed monthly payments. Rather, payments are based on amounts withdrawn from the account.

Choosing the Right Home Equity Option

Deciding between a second mortgage and a home equity line of credit can be difficult. However, the owners must agree to their personal needs. Second mortgages are more suitable for people who need immediate cash for a one-time purchase, while lines of credit are more suitable for homeowners who require smaller amounts of cash over an extended period of time.