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How to Gather Equity Loan Information


When people speak of equity loans, they may be referring to home equity loans. Home equity loans are loans granted to a borrower in exchange for the lender getting security by using the borrower's residence as collateral. Your home equity would be the value in your home that you personally own.

Often, a home equity loan is deemed a "second" mortgage which means you will have an older mortgage on the house already. The value of the mortgage you already have will be subtracted from the present value of your home so that you come up with the home equity you still own. If the value of your existing mortgage is $200,000 but your home is worth $500,000 that leaves you with home equity worth $300,000 to work with and offer as collateral for your home equity loan.

It is important to know what type of home equity loan is appropriate for someone in your situation. You can get your standard home equity loan or you can opt instead for a home equity line of credit. A home equity line of credit is a loan with a variable interest rate, meaning you have to pay different amounts back to the lender every month. The pros of using the home equity lines of credit is that you can opt to pay smaller amounts per month - the disadvantage however is that you may have to pay higher in accumulated interest fee payments over the life of the loan.

The biggest disadvantage with small monthly payments is that you will have to shoulder the corresponding huge "balloon" payment when the loan comes to a close. That sort of thing won't happen with a standard home loan because you pay fixed payments every month so that the loan is paid for in full at the end of the normal payment period, with no balloon payment to shock you at the end. Another difference between a home equity loan and a home equity line of credit is that home equity loan borrowers need not shoulder fees like inactivity fees, annual membership fees, and transaction fees. There is also no minimum amount and no maximum amount for withdrawals (which are commonly imposed on a home equity line of credit.)

A home equity loan is appropriate for debt consolidation purposes. But if you resort to paying off debts with your existing home equity, then you might be showing the lender that you are not financially disciplined.

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