Need to add a second bathroom to your house? Perhaps you want to add a new deck to the back of your house? Or maybe you've got a fairly large number of medical bills you'd like to knock off? Well, then a home equity loan might be just what you need. Home equity loans-sometimes referred to as a "second" or "third mortgage," due the fact that place an additional lien on your house-allow you to borrow money against the resale value of your house, less the money you still owe on your primary mortgage. Most home equity loans are for 60% - 80% of this difference-though there are much more dangerous home equity loans which can go up to 125% of the difference, which would leave you still owing money if the bank ever foreclosed on your home!
In other words, if you have a $150,000 house and you still owe $40,000 on the mortgage, you would be eligible to borrow $88,000 on an 80% Home Equity Loan, provided you have the wherewithal to pay it back. The interest rate will be higher than it was on your first mortgage, because Home Equity Loans are sort of like one bank getting dibs on something only if another bank doesn't have to get dibs on it before them.
You can borrow a home equity loan in two different ways. One type of home equity loan is in a lump payment where the bank issues you a check after they've verified all your information. This is very helpful if you have one large project you're doing, like adding another room to your house or paying off your high interest rate credit cards.
Another type of home equity loan is delivered the form of revolving credit. A revolving credit home equity loan is like a credit card that is being financed by your house. It has a limit on it and you can use it and pay it off as often as you want. This is good if you are undergoing long term renovations of the house. However, be careful with this type of Home Equity Loan, because there are a slew of different terms, from a straight repay, to a nasty balloon repayment where you pay only on the interest until you move, upon which time you're responsible to pay off all the principle.
While a home equity loan can be just what you need to get a variety of things taken care of, be careful to not borrow more than you need, because you can lose your house if you default on a home equity loan.
