Most people who are not well acquainted with different types of loans find the various terms used for loans confusing. Two of the terms that many people believe are different but are actually one and the same in practice are home equity loans and second mortgages. The two terms are interchangeable and refer to a type of loan that is secured by the equity on your home.
What is a home equity loan?
A home equity loan, as the name implies, is a mortgage loan that you can get on the equity on your home. It is called a second mortgage because it is subordinate to the first mortgage loan you have already taken on your home. This means that if you default on your loan payments or file for bankruptcy, then your first mortgage gets paid off first. For this reason, it is considered riskier by lenders and as a result they may charge a higher interest rate and processing fees.
How is home equity calculated?
The amount of home equity loan that you can get depends upon the available equity in your home, which is calculated by subtracting the remaining balance on your first mortgage from the current value of your home. For example, if your home is currently valued at $700,000 in the market and you have $300,000 remaining on your first mortgage of $500,000, then the available equity in your home is $400,000. You can borrow up to 80 percent of this amount.
Why take out a second mortgage?
Taking out a home equity loan can be a good choice if you are in need of a large amount of money. You can use the money to consolidate your debts, purchase a new home, start a business, pay for your children’s education or buy a new car. In fact, you can use it to do practically whatever you like to do. You should, however, exercise prudence as the loan is costly.
Where can you get home equity loans?
You can get home equity loans from banks, financial institutions, credit unions and private lenders. A lender like Fast Access Finance makes the home equity loan application process easy by allowing you to apply online. Complete our online application to apply for your second mortgage. If you have bad credit, are self-employed or have declared bankruptcy, Fast Access can help you get the loan you need.
Home equity loans have several benefits. Because the loan is based entirely on the equity available in your home, your credit score has no effect on it, whether good or bad. It can put a large amount of cash in your hand when you are in need of money. You can customize your repayments to suit your budget, making it easy to pay back your second mortgage.