Home Equity Loan

Do you need to pay for a home remodeling project or to pay off a credit card? If so, a home equity loan might be the answer. A home equity loan is a fixed or adjustable rate loan that is secured by the equity in your home. With a home equity loan, you borrow a lump sum of money to be paid back monthly over a set time frame, much like your first mortgage. The terms home equity loan and second mortgage are often used interchangeably.

The process for a home equity loan is similar to your first mortgage. The closing costs (often 2 to 3 percent of the loan amount) are usually lower and, although the interest rate is higher on a home equity loan, the interest paid is tax deductible.

To qualify for second mortgage, your credit must be in good standing and you must be able to document your income. An appraisal will be required on your home to determine the home’s market value.

What Is a Home Equity Line of Credit?

If you need to borrow money to pay off debts or make a major purchase, a home equity line of credit (HELOC) can be useful. A HELOC is a form of revolving credit secured by the equity in your home. This is an open-ended loan that can be paid down or charged up for the term of the loan, much like a credit card. The interest rate fluctuates, typically monthly.

How Does a Home Equity Line of Credit Work?

With a HELOC, your lender will approve you for a specific amount of credit — the maximum amount you may borrow at any one time under the plan. In determining your credit limit, your income, debts, credit history and other financial obligations will be reviewed. An appraisal will be required on your home to determine the home’s market value. Your credit limit will be based on a percentage of your home’s appraised value, which is then subtracted from the balance owed on your existing mortgage. When you take out a HELOC, you pay for many of the same expenses as when you financed your original mortgage, such as an application fee, title search, appraisal, attorneys’ fees and points (a percentage of the amount you borrow).

Types of Home Equity Line of Credit

Most HELOCs have a fixed period (5, 10, even 20 years) during which you can borrow money. Typically, you will use special checks or a credit card to draw on your line. You will be required to make a minimum payment each month — usually the interest that accrued during the draw period. However, the interest you pay is usually tax deductible. At the end of your “draw period,” you will be required to pay off the loan, making monthly payments on the principal and interest.

Learn more about getting a home equity loan by contacting us at 1-888-848-1880 today.

M2 Lending Solutions 2000 S Colorado Blvd, Tower One Suite 1-3400 Denver, CO 80222