| A home equity loan, also known as a mortgage loan | | | | time, your house can be foreclosed on. |
| equity or second-mortgage, is a way to pay off other | | | | One should be extremely careful when choosing a |
| debts that you've accumulated. It is a second | | | | home equity loan. There are definitely lenders who |
| mortgage that uses your property as collateral and if | | | | scheme to cheat individuals out of their real estate, |
| you don't pay the loan, the lender has the right to | | | | typically by (more). Research and self-knowledge is a |
| foreclose on your property. | | | | must when you choose to involve yourself in one of |
| This home equity loan should not be confused with a | | | | these types of loans, because your entire property is |
| home equity line of credit, which works more like a | | | | up for risk. You must make sure you can make the |
| credit card and allows multiple borrowings. The home | | | | payments for this loan. |
| equity loan is a one-time loan that must be paid off on | | | | The first step to choosing a home equity loan is to |
| an amortizing schedule. This type of loan is usually | | | | shop around for lenders or even better, ask for a |
| taken out to pay off other large financial debts such | | | | referral from a friend or family member who has gone |
| as credit card or student loans. | | | | through this same process. But make sure that you do |
| The method to chart out how much equity loan you | | | | not let the lender know you have been referred, as |
| can qualify for is to calculate your loan-to-value ratio. | | | | many lenders view a 'referral' as someone they can |
| You can borrow up to 80% of your property's loan to | | | | tack on extra fees to and still get their business. Check |
| value ratio. To figure this number out, divide the amount | | | | your credit report at least 6 months before you want |
| you still owe on your mortgage by the property's | | | | to make the loan to make sure everything is accurate. |
| current market value... If you have a 50% LTV, you | | | | People normally use a home equity loan for funding |
| can borrow up to 80%. | | | | things like a home renovation, hospital expenses, |
| So if you still owe $40,000 on your mortgage and your | | | | student loans, or big debts with very high interest rates. |
| property is currently worth $100,000, you have a LTV | | | | Again, the main concern when choosing how much to |
| of 40%. This means you can borrow another $40,000 | | | | take out for a loan is not going beyond your means. |
| with a equity loan, or 40% more (up to 80%). | | | | Make sure the amount you take out is what you can |
| The advantage of having a home equity loan is that it | | | | afford to pay back, and make sure an emergency |
| allows you to borrow a large amount of money at a | | | | fund is also set up to avoid missing payments on the |
| lower rate than if you were to borrow that same | | | | loan which will lead to foreclosure. It is your |
| amount from a personal loan. The disadvantage is that | | | | responsibility when taking out a mortgage equity loan |
| because it has a lower rate, the collateral of your | | | | to be on top of your payments to avoid losing your |
| home is required and if you fail to make payments on | | | | house. |