A home equity line of credit is a great way to use the collateral in your house to get a loan. There are many people who would use this fantastic option, but don't quite understand how it works. Here are some things that you should know about a home equity loan so you can decide if it is right for you.
How Much Can You Get In A Loan?
The amount that you can get in a loan is dependent on a couple different factors. First, the bank will send in someone to appraise the house. They will come and look at how much the house would go for if it were sold that day. In some cases, the price of your house has increased, in that case you could borrow against the increase in your house. For instance, if you pad $200,000 for your home and it appraised at $270,000 you have some room to borrow against it. Another question is how much do you already have in equity? If you already made a sizeable down payment, or if you have lived there for a while and have good equity in the house, you would be able to borrow more. This doesn't meant that you would be able to borrow against all the equity you have. Usually it is just a fraction of it. But you can get a loan using the equity in your house.
What Are The Payment Options?
Just like your mortgage the payment options on your home equity loan will be a monthly payment additional to your mortgage. You will pay a certain amount each month, although you can easily pay more if you want to pay it off faster. There is usually a fixed interest rate for a certain period of time, and then it is adjustable. That is why it is best to pay it off in the period of time that the interest is fixed. Usually it is about 5-10 years.
What If I Default On The Loan?
If you default on the loan, it will be just like defaulting on your house. The bank could take your house. This is why it is best to make sure that you don't borrow too much that you can't make the payments. However, because the interest rate is low, it is usually better to use a home equity loan rather than take out credit cards and their high interest rates.
These are just a couple things you need to know about home equity loans. For more information, contact companies like Family Financial Partners.
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