Home Equity Loans – Facts You Need To Know

Your home is probably the biggest asset you have to use for money. A home to back you up when you need funds is one of the greatest advantages of home ownership. In recent years, there has been a major boom in the amount of people looking to use their homes as a way to get access to extra money when they need it most. One of the best ways to do this is through a second mortgage, or home equity loan.

Second mortgage loans are loans made by adding to the first mortgage, and it is typically based on the amount of equity you have in your home. Usually it’s needed to fund things like home improvements or renovations. Since you’ve already been through the loan process once, the underwriting required to get a second mortgage is much easier than it was the first time around when you took out the first loan.

The transaction fees when applying for a home equity loan will, more than likely, be a lot cheaper than they were when you applied for your first mortgage. This has to do with the interest rates compared to the first loan, since typically, 2nd mortgages and home equity interest rates are higher than they are for primary mortgages.

But then, there are some positive points too. For example, in most cases, the interest is 100% deductible as long as the combined loan to value of your 1st and 2nd mortgage does not exceed the value of the home.

On a second mortgage, you borrow a fixed sum of money against the home’s equity, and pay it back over a specific time. The amount borrowed will be combined with the amount you still owe on your first mortgage.

Before you run off to the bank trying to get a home equity loan, there are some things you should know.

You should have a fair amount of your first mortgage paid off already. This will help with the interest rate your lender may offer you. It may not be worth the time and the money to apply for a home equity loan if you have not been paying off your first mortgage for very long.

The money you are getting from a home equity loan can be used for almost anything you want. If you need to make home repairs, want to buy a boat or a car, or pay off or consolidate debt, just about anything you can think of. Be careful when applying and make sure you can afford the monthly payments and are taking out the loan for a worthy purpose, or you could jeopardize ownership of your home.

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