Mortgages come in many forms. The type of mortgage or home loan you apply for may depend on why you need the mortgage in the first place. If you already own a home, home equity loans are a great option if you need money and want to benefit from the value of your home. A home equity loan or second mortgage is a way to unlock that money that is, as they say, "in the walls" of your home. If your home has appreciated in value since you purchased it, or there is a substantial difference between the amount you still owe on your mortgage and the value of your home, a home equity loan may be a great way to unlock this money if you have a considerable expense to pay off. There are many benefits to applying for a home equity loan:
Even if you already have a mortgage, you can borrow against the amount of money your home is worth minus what you still owe on the first mortgage. Some lenders will even let you borrow over 100% of this difference.
You can use the money from your new home equity loan to make home improvements, pay off credit card debt, or pay the costs of tuition, and medical bills. How you use this money is not usually restricted.
Home equity loans and second mortgages are generally for a much short period of time than traditional mortgages.
In many circumstances, the rates on home equity loans are tax-deductible.
You have two options for receiving the money from your home equity loan --- an open end loan or a closed end loan. An open end loan is a home equity line of credit (HELOC), which will let you decide when and how much money to draw from the equity in your home. A closed end loan is an equity loan that offers you all of the value of the equity in a lump sum of money at the beginning of the loan term.
Many home equity loans and second mortgages are fixed rate mortgages (FRMs) and are for about 10-15 years.
Pursuing a home equity loan or a second mortgage is an important and serious decision, so it's important to think it through before signing off on it. Be sure to discuss with your lender or mortgage company what course of action is best for your situation. Many fees are involved in getting your home appraised for the home equity loan process, so this and the other fees are to be taken into consideration before pursuing this option.