Home Equity Loans
Access cash with a second mortgage
Home equity loans allow borrowers to access the equity they've built up in their real estate assets as a result of having paid down their mortgages. All home equity loans require that you use that built-up capital as collateral, which essentially allows the lending institution to make an ownership claim on your home if you default on your payments.
Types of Home Equity Loans
In addition to home equity loans, you can also take out home equity lines of credit. Though the terms are sometimes used interchangeably, they are not the same thing. Home equity loans are usually dispersed in lump-sum payments with fixed interest rates, whereas home equity lines of credit offer access to a revolving credit line, usually with variable or floating interest rates.
It is common for borrowers to be able to get as much as 100 percent of the appraised value of their home, minus any outstanding liens, when taking out a second mortgage. Some states have limits on how much you can borrow through home equity loans, though, and it's always best to borrow the smallest possible amount to limit your own risk.
There aren't usually any restrictions on what you can use the money for when you take out a home equity loan. People typically use them to finance home renovations, college educations for their children or down payments for rental properties they want to buy.
Get the Best Home Equity Loan Rate
To get the best home equity loan rate possible, you'll need to have excellent credit. It is very difficult to get a bad credit home equity loan, and even if you can, you should expect it to be offered at a very high rate of interest. You've got to be very careful with bad credit home equity loans, because if you default on your payments, the lender can put a lien on your house regardless of whether or not your first mortgage is in good standing. This can lead to foreclosure and the eventual loss of your house.
If you're having trouble making payments on your second mortgage, it is very important that you do something about it immediately. Home equity loan refinancing options may be available, which can help make your monthly payments more manageable.
Beyond the actual interest rate, another thing to consider when it comes to home equity loans is whether or not the debt can be discharged if you need to declare bankruptcy. Getting a home equity loan that can be discharged via bankruptcy proceedings can protect you in the event of an unforeseen financial crisis.