A home equity loan is a type of loan in which the borrowers use the equity of their home as collateral. The loan amount is determined by the value of the property, and the value of the property is determined by an appraiser from the lending institution.[citation needed]
Home equity loans are often used to finance major expenses such as home repairs, medical bills, or college education. A home equity loan creates a lien against the borrower's house and reduces actual home equity.[1]
Most home equity loans require good to excellent credit history, reasonable loan-to-value and combined loan-to-value ratios. Home equity loans come in two types: closed end (traditionally just called a home-equity loan) and open end (a.k.a. a home equity line of credit (HELOC)). Both are usually referred to as second mortgages, because they are secured against the value of the property, just like a traditional mortgage.
Home equity loans and lines of credit are usually, but not always, for a shorter term than first mortgages. Home equity loan can be used as a person's main mortgage in place of a traditional mortgage. However, one cannot purchase a home using a home equity loan, one can only use a home equity loan to refinance. In the United States until December 31, 2017, it was possible to deduct home equity loan interest on one's personal income taxes. As part of the 2018 Tax Reform bill[2] signed into law, interest on home equity loans will no longer be deductible on income taxes in the United States.
There is a specific difference between a home equity loan and a HELOC. A HELOC is a line of revolving credit with an adjustable interest rate whereas a home equity loan is a one time lump-sum loan, often with a fixed interest rate. With a HELOC the borrower can choose when and how often to borrow against the equity in the property, with the lender setting an initial limit to the credit line based on criteria similar to those used for closed-end loans. Like the closed-end loan, it may be possible to borrow up to an amount equal to the value of the home, minus any liens. These lines of credit are available up to 30 years, usually at a variable interest rate. The minimum monthly payment can be as low as only the interest that is due. Typically, the interest rate is based on the prime rate plus a margin.
Surveyor and conveyor or valuation fees may also apply to loans but some may be waived. The survey or conveyor and valuation costs can often be reduced, provided one finds a licensed surveyor to inspect the property considered for purchase. The title charges in secondary mortgages or equity loans are often fees for renewing the title information. Most loans will have fees of some sort.
^. Retirement and Estate Planning for Families. Kentucky State University and Purdue University. Archived from the original on 25 December 2007. Retrieved 7 March 2012.
^"H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018". www.congress.gov. 22 December 2017. Retrieved 2017-12-31.
^"Ask CFPB: What fees can my lender charge if I take out a HELOC?". consumerfinance.gov. CFPB. Retrieved 30 December 2015.
External links
Putting Your Home on the Loan Line is a Risky Business - from FDIC
Borrowers Lose Home Equity Tax Deduction
January 12, 2023
home, equity, loan, this, article, multiple, issues, please, help, improve, discuss, these, issues, talk, page, learn, when, remove, these, template, messages, this, article, needs, additional, citations, verification, please, help, improve, this, article, add. This article has multiple issues Please help improve it or discuss these issues on the talk page Learn how and when to remove these template messages This article needs additional citations for verification Please help improve this article by adding citations to reliable sources Unsourced material may be challenged and removed Find sources Home equity loan news newspapers books scholar JSTOR March 2012 Learn how and when to remove this template message The examples and perspective in this article may not represent a worldwide view of the subject You may improve this article discuss the issue on the talk page or create a new article as appropriate June 2010 Learn how and when to remove this template message Learn how and when to remove this template message A home equity loan is a type of loan in which the borrowers use the equity of their home as collateral The loan amount is determined by the value of the property and the value of the property is determined by an appraiser from the lending institution citation needed Home equity loans are often used to finance major expenses such as home repairs medical bills or college education A home equity loan creates a lien against the borrower s house and reduces actual home equity 1 Most home equity loans require good to excellent credit history reasonable loan to value and combined loan to value ratios Home equity loans come in two types closed end traditionally just called a home equity loan and open end a k a a home equity line of credit HELOC Both are usually referred to as second mortgages because they are secured against the value of the property just like a traditional mortgage Home equity loans and lines of credit are usually but not always for a shorter term than first mortgages Home equity loan can be used as a person s main mortgage in place of a traditional mortgage However one cannot purchase a home using a home equity loan one can only use a home equity loan to refinance In the United States until December 31 2017 it was possible to deduct home equity loan interest on one s personal income taxes As part of the 2018 Tax Reform bill 2 signed into law interest on home equity loans will no longer be deductible on income taxes in the United States There is a specific difference between a home equity loan and a HELOC A HELOC is a line of revolving credit with an adjustable interest rate whereas a home equity loan is a one time lump sum loan often with a fixed interest rate With a HELOC the borrower can choose when and how often to borrow against the equity in the property with the lender setting an initial limit to the credit line based on criteria similar to those used for closed end loans Like the closed end loan it may be possible to borrow up to an amount equal to the value of the home minus any liens These lines of credit are available up to 30 years usually at a variable interest rate The minimum monthly payment can be as low as only the interest that is due Typically the interest rate is based on the prime rate plus a margin Contents 1 Fees 2 See also 3 References 4 External linksFees EditA brief list of fees that may apply for home equity loans Appraisal fees Originator fees Title fees Stamp duties Arrangement fees Closing fees Early pay off fee Inactivity fee 3 Annual or Membership feeSurveyor and conveyor or valuation fees may also apply to loans but some may be waived The survey or conveyor and valuation costs can often be reduced provided one finds a licensed surveyor to inspect the property considered for purchase The title charges in secondary mortgages or equity loans are often fees for renewing the title information Most loans will have fees of some sort See also EditHome equity Home equity line of credit Mortgage equity withdrawal Reverse mortgageReferences Edit What is a home equity loan Retirement and Estate Planning for Families Kentucky State University and Purdue University Archived from the original on 25 December 2007 Retrieved 7 March 2012 H R 1 An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 www congress gov 22 December 2017 Retrieved 2017 12 31 Ask CFPB What fees can my lender charge if I take out a HELOC consumerfinance gov CFPB Retrieved 30 December 2015 External links EditPutting Your Home on the Loan Line is a Risky Business from FDIC Borrowers Lose Home Equity Tax Deduction Retrieved from https en wikipedia org w index php title Home equity loan amp oldid 1132554631, wikipedia, wiki, book, books, library,
