A home equity loan is either a fixed or variable (adjustable rate) mortgage that is in second position to your first and primary mortgage. The home equity loan can serve as either an open loan with a home equity line of credit (HELOC) you can draw from that functions similar to a credit card and that you can use as you need. Or, simply it can be second mortgage that pays you a lump sum amount in the form of home equity, which then becomes a loan you would repay on a repayment schedule.
A home equity loan is ideal for a homeowner who has build-up equity to tap into either to do renovations, invest in college tuition, pay down other debt, or potentially invest in other assets like an investment property. It allows a homeowner to utilize equity for a secondary layer of financing and since there’s real property as collateral, the interest rates on home equity loans are generally much lower than unsecured debt such as credit cards.
A home equity loan allows homeowners to obtain a loan by using the equity built up in their home as collateral. Using the equity in your home is a powerful tool since it’s collateralized and typically provides a much lower interest rate than a credit card. A home equity loan can be used for myriad of items such as paying off high interest loans or debts, such as credit cards; they can be used to invest in other assets like an investment property; or they can be used to fund other initiatives such as a child’s college fund.
• Equity in a property is being utilized for a greater purpose potentially (and ideally) such as paying off high interest rate loans or credit cards.
• Through a HELOC, you can use funds as needed similar to a credit card but just at a much lower interest rate.
• A lump sum second loan can also be obtained which allows for a sizable amount of capital to be received at once.
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