Equity
Loan
An equity loan allows you to borrow money from a lender
to the amount of the money you have paid into a property.
Equity loans usually refer to home equity where the loan
provided is backed by the money you have paid into your
home. There is a lien put on the equity of your home after
you have borrowed the money.
Many people find an equity loan an appealing option due
to the very low rates they offer. The low rates are mostly
due to the fact that they are backed by a property you already
own. However since the lien is put on your home, you may
end up losing your home to the lender if you fail to pay.
The lender may auction off the home and pay you the amount
outside the lien.
A low rate equity loan can be used for a variety of different
tasks. You can use the money to start a new home improvement
project or put up an addition to your home. You can use
it to take a much-awaited vacation or pay for your kid’s
college tuitions.
Equity loan rates have been so low lately that some people
even borrow the money to invest it. This can be a dangerous
proposition however, since if your investment tanks you
may end up losing your home.
There are two main types of equity loans you can get on
your house. A home equity loan is a lump sum payment equal
to a percentage of the money you have paid into your home.
A home equity line of creidt is different and works more
like a credit card, where you borrow only the money you
need from your home equity.
Equity loans have to be paid back, usually on a monthly
basis. This includes the principal payment plus interest
for the month. If you do not pay on time, you can end up
ruining your credit and be forced to pay a higher loan rate
on any credit you apply for. On the other hand, timely payments
can help you raise your credit score so you are able to
refinance your equity loans and secure even lower interest
rates.
About
the author
Jakob Jelling is the founder of http://www.cashbazar.com.
Visit his website for the latest on personal finance, debt
elimination, budgeting, creditcards and real estate.
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