In our last post, we talked about ‘ HOW TO FIND THE BEST HOME EQUITY LOAN RATES?‘. Now let’s talk about “What are usual home equity loan terms?”
Home equity loans are given to individuals who are willing to use their homes as collaterals. However, that is not as easy as it gets. There are a few other characteristics and home equity loan terms that make up the entire subject. It is the knowledge of these things that make home equity loan a possibility. Here are some of the home equity loan terms that you have a full understanding of before you can fully grasp the concept behind it.
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A second mortgage is basically the same thing as your home equity loan as it allows you borrow against the value of your home. Since the home might have been gotten with a mortgage, hence the reason it is called the second mortgage. With this, there is a lien on your home property where there is a default in payments. Also, the loan is subordinate to a more senior mortgage or loan. At the end of the day, the extractable value is the market value of the property less balance on the first mortgage if any.
Equity is generally the value of anything. It signifies the ownership and worth of anything. In this context, home equity is the value of a home property. It is one of the home equity loan terms that is embedded in its core structure. This is because the loan taken is completely dependent on the value of the home. The loan given cannot be more the market value of the property or its realizable value.
Appraisal/ Appraisal fees
Before the equity of the home can be gotten, it has to be valued. For this, the lender carries out a professional appraisal of the property or gets an independent appraisal done by an independent valuator. This doesn’t come from their pockets though; the borrower covers the cost of getting the value of the home, and that is what makes up the appraisal fee.
Home equity line of credit (HELOC)
Just like any line of credit, the home equity line of credit allows the borrower to get funds as he or she wishes, up to a certain cap value. This value is usually predetermined and can be obtained with the use of a credit card or check. As a definition, the HELOC, as it is popularly called, is a type of home equity loan. Here, the lender agrees to give the borrower a maximum amount within an agreed time period. Since the collateral is backed by the house or home, it can also be seen as a second mortgage.
Refinancing is part of the many home equity loan terms because it is part of the three types of home equity loans we have. Generally, refinancing is the process of taking out a loan to finance the payment of another loan. Home equity loans can be taken to finance other loans, and other loans might also be taken to finance the payment of home equity loans.
Related: HOME EQUITY LOAN VS. PERSONAL LOAN?