Automotive Journal

When a borrower uses the equity in their home as collateral it is known as a home equity loan. Home equity loans are generally used to help finance expensive things such as medical bills, major home repairs, and college education. A lien is created through a home equity loan. A lien is a form of security interest over an item of property to secure a payment. The lien in a home equity loan is created against the borrower’s house, and reduces home equity.

Home equity loans are mostly second position liens but they can also be first or third position. To get a home equity loan it is normally required that you have good to excellent credit history. You may also need reasonable loan-to-value and combined loan-to-value ratios.

Closed end and open end are the two forms of home equity loans. Generally the both of these are referred to as second mortgages. The reason is because they are secured against the value of the property, like a traditional mortgage. Home equity loans may have a longer term than first mortgages but generally they have shorter terms.

Closed End Loan

The act of a borrower receiving a lump sum at the time of the closing and being unable to borrow more is known as a closed end home equity loan. Appraised value of collateral, credit history, and income can have an effect on the maximum amount of money that you can be borrow. It is quite normal that you may be able to borrow up to 100% of the appraised value of the home. It is also possible that some lenders that will allow you to borrow over 100% with an over-equity loan. There may be a limit on how much you can borrow in some states though.

Open End Loan

With an open end home equity loan a lender sets an initial limit to the credit line based on factors such as credit history and income. Not only that, but the borrower can choose when and how often they borrow against the equity in the property. A home equity line of credit, HELOC, is also known as an open end home equity loan. Just like the closed end home equity loan, it is possible to borrow up to 100% of the value of the home. The lowest possibly monthly payment you can have can be as low as the interest only. The interest rate is most commonly based on a prime rate plus a margin.

Appraisal fees are one of the many fees that can be associated with a home equity loan. The others include such things as: titles fees, stamp duties, closing fees, arrangement fees, originator fees, early pay-off, and other costs that may be included with a loan. Surveyor and conveyor or valuation fees are another type. It is possible that that the surveyor fee may be waived. The main way to reduce the cost of a surveyor fee is by getting your own licensed surveyor to inspect the property.

In conclusion a home equity loan can be used for things such as a repair on your house. It is possible to get up to 100% or over of the value of the home. There are closed end and open end home equity loans. Your credit history and your income are major factors in determining how much you can borrow. There are also a number of fees that may be associated with your home equity loan.