A home equity loan is availed by homeowners against equity of the house. Such a loan is sanctioned based on the equity of a house. It is an additional loan availed by existing home loan borrowers.
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A home equity loan is also called second mortgage, equity loan and term loan.
Home equity is the difference between the current value of a house and the outstanding home loan amount.
In a home equity loan, the equity on the house is pledged as collateral. Repayment of such a loan is to be made in monthly installments over and above existing home loan EMIs.
If the home equity loan is not paid off, your house can be auctioned to recover the remaining amount.
Application and utilization:
i. Lump sum: Withdraw the entire loan amount at one go.
ii. Line of credit (HELOC): HELOC stands for home equity line of credit. In this option, a maximum loan amount is approved. You can borrow the amount in parts depending on the requirement.
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Home equity loans are sanctioned based on the equity of your house.
Home equity = Current value of the house – outstanding home loan amount.
1. Remodeling, renovation or improvisation of a house and property.
2. A home equity loan can be used for college education of a family member.
3. To purchase a second home or land.
4. To consolidate high interest debts.
5. To purchase a vacation home.
6. To purchase an investment property.
7. To start a business.
8. To purchase a vehicle.
750 and above: You get the best interest rates.
If you don’t have a good credit score or have no credit score at all, apply for a secured credit card and use it to build a credit score.
2. Check how much you can borrow. The sum total of the amount you want to borrow and the home loan outstanding shouldn’t exceed 85% of the value of the home.
3. Check your debts. Add monthly payments towards the existing loans and credit card dues.
Can you sell a home if you have an existing Home Equity Loan?
Generally, creditors holding a lien on your property are paid off from the house sale proceeds. Therefore, the home equity loan is normally paid off on the sale of your house.
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