Key Home Equity Loan Terms
What do you know about home equity loans? Did you know that they can provide you with a large sum of money? A home equity loan is when you take out a loan, using your home as collateral. Since you have such a valuable commodity, you will be able to get quite a large sum of money. Home equity loans are popular because they are not hard to be approved for and carry a lower interest rate then other, unsecured loans. Before you head to your bank to get a home equity loan, you are going to want to familiarize yourself with some key home equity terms. Not to sound like an old NBC public service announcement, but the more you know the better off you will be.
Home Equity Terms
Bid- When you ask for money for housing improvements you will need an estimate of how much it will cost. The bid is the estimate.
Equity - This is the difference in your home’s current value, and what you still owe on it. If your house is worth $400,000 and you owe $300,000, then your equity is $100,000.
Home equity debt - This is debt that is secured by your home.
Home equity loan - This is based on the amount of equity you, as the homeowner, have in the property. Any interest you pay on this loan is generally tax deductible.
Home equity line of credit - This is an open ended loan that is secured by the portion of the home value that you own. This is paid as revolving debt. It is kind of like having a pre-paid credit card with a large sum of money attached to it.
Mortgage broker - This is a person you work with to get a mortgage. They will check to see if you meet the criteria for home equity loans.
No documentation - This is when you apply but you only provide a minimum of personal information. This could affect your application and interest rate charged.
Repayment period - During this period you cannot take out money any longer and must pay down the entire loan.
Piggyback loan - This is a home loan that is designed to avoid mortgage insurance. With this option you pay a down payment of less than 20%.
Settlement - This is the closing. You will pay the closing costs and escrow costs. Documents will be signed at this meeting.