What is home equity loan? Interest rates, Benefits
What is home equity loan?
A home equity loan is a type of loan that allows homeowners to borrow money using the equity they have built up in their home as collateral. Equity is the difference between the current market value of the home and the outstanding balance of any mortgages or other liens on the property.
Home equity loans typically have fixed interest rates and are disbursed as a lump sum, which can be used for any purpose. The loan is secured by the home, which means that if the borrower is unable to repay the loan, the lender can foreclose on the property to recover the outstanding debt.
The amount that can be borrowed through a home equity loan depends on the amount of equity the borrower has in the home, as well as other factors such as the borrower’s credit score, income, and debt-to-income ratio. Generally, lenders will allow borrowers to borrow up to 80% to 90% of their home’s equity.
Home equity loans can be a good option for homeowners who need to borrow a large amount of money for a specific purpose, such as a home renovation or debt consolidation. However, it is important to carefully consider the costs and risks associated with these loans, including the potential loss of the home in the event of default.
home equity loan interest rates
|Loan Type||Average Rate||Average Rate Range|
|Home Equity Loan||8.08%||7.27% – 9.75%|
|10-year fixed home equity loan||8.22%||6.24% – 9.50%|
|15-year fixed home equity loan||8.17%||6.47% – 10.53%|
|HELOC||7.97%||6.49% – 8.89%|
home equity loan benefits
- Lower Interest Rates
- Flexible use of funds
- Fixed use of funds
- Potential tax benefits
- Access to funds without selling the home
home equity loan vs home loan
A home loan, also known as a mortgage, is used to purchase a home or other real estate property. The borrower makes monthly payments to the lender over a fixed period of time, typically 15 to 30 years, until the loan is fully paid off. The loan is secured by the property, meaning that if the borrower fails to make payments, the lender can foreclose on the property.
On the other hand, a home equity loan is a loan that is taken out against the equity in a home. Equity is the difference between the market value of the home and the outstanding balance of any mortgages or other liens on the property. Home equity loans are usually taken out as a lump sum and repaid over a fixed period of time, typically 5 to 15 years. The interest rate on a home equity loan is usually higher than that of a home loan, as it is considered a second mortgage.
Both home loans and home equity loans can be used to finance a property, but they serve different purposes. Home loans are used to purchase a property, while home equity loans are used to access the equity that has built up in a property. It is important to carefully consider the terms and conditions of both types of loans before making a decision, and to ensure that the loan fits within your overall financial plan.