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Home Equity Loans Explained

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By : Sonia Smith    99 or more times read
Home equity loans are kinds of loans that let you use your home as collateral or guarantee for a certain amount borrowed. Since a home is considered as one of your most valuable assets, most homeowners opt for this type of loan for major things such as medical bills, education and making home improvements.A home equity loan will let you borrow a certain amount of money. Many lenders set a credit line by a percentage of the appraised value of your home and deduct it from the balance you owe of your current mortgage.

The mortgage lender will determine your credit by taking into consideration your capability to repay the whole loan, interest, principal and evaluating your debts and your other financial obligations, which include your credit history.If you want to make use of this kind of loan, you must be able to establish a plan that meets your needs best. Make sure to read the terms and conditions and the agreement on different types of plans thoroughly, including the annual percentage rate or APR and the costs of the plan. Keep in mind that the APR or annual percentage rate is only based on the rates of interest rate and do not cover the closing costs, charges and other fees, so make certain to compare the costs from several lenders.

Some expenses you could acquire in home equity loans are the same expenses you pay for when you purchase a home. The expenses could include application fees, fee for appraisal of your property to estimate its value, costs of closing, up-front charges, taxes, attorney’s fees, title search, mortgage filing, property and title insurance. Furthermore, you may also be subjected to various fees during the plan period such as membership fees, transaction fees, and fees on yearly maintenance. You could borrow up to eighty percent of the value of your home in this type of loan.

Keep in mind that because you are putting your home as guarantee or collateral for this loan, you should not use it lightly. If you fall behind on your monthly dues, there is a chance that you could lose your home since the lender may take over your home and dispose of it to regain the money they lent you.When you use your home as collateral for a home equity loan, it does not necessarily mean that you can afford the monthly dues. Weigh your options well and find out if a home equity loan is within your budget.

A home equity loan is best used on making home improvements that could increase its value. Several home improvements like adding a swimming pool does not always boost the resale value of your property. Additional living space such as a modernized kitchen and bathroom will definitely increase the home value.This is a great way to acquire funds, most especially if your property is worth more than what you owe on it. Nonetheless, it might also lead to financial problems so make sure you use it well. Consider using the money as part of your retirement or for college funds for your kids instead of spending on irrelevant things.
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