Home equity loans, sometimes known as equity mortgages or second mortgages, allow you to borrow against the equity in your home. The amount you can borrow will depend on many factors including the amount of equity you have.
Equity is the difference between your home's market value and the amount you still owe on the loan. For example, if you have a home valued at $250,000 and you still owe $190,000 on your mortgage, your equity is $60,000. In most cases, you can expect to borrow up to 85% of your equity.
Applying for an equity loan gives you access to 100% of your loan amount, unlike a home equity line of credit (HELOC), which is a line of credit like a credit card. With most equity loans, you need to pay off your balance within 15 years. The good news is the vast majority of home equity loans have a fixed interest rate, unlike adjustable rate ARMs, and interest rates tend to be very low.
A second mortgage can be used for virtually anything you want whether you plan to pay medical bills, go back to school, make home improvements, or even buy a car. Regardless of how you use your loan, remember that it is secured by your home, so defaulting on the loan can end in foreclosure.
There are many reasons to consider an equity loan. The following are some of the most important benefits that may apply to you.
If you need a large amount of money for a major expense or to make your dreams possible, a second mortgage may be a good option for you. Interest rates are very competitive, and these loans are one of the most popular ways to consolidate debt or finance a large purchase. Just remember that you are using the equity in your home and the loan is secured, so make sure you can afford your payments.
If you want access to your equity in case of an emergency or you do not need the money all at once, a HELOC may be a better choice for you.