Home equity loans, sometimes referred to as HEL, represent a type of loan that allows a borrower to use their home equity as collateral. The most common situations for the use of such loan options include medical bills, house repairs, college education and other situations of emergency when money is needed urgently. With home equity loans, the actual home equity is reduced and a lien is generated against the house in question.
People with a bad credit history will most certainly have difficulties in getting home equity loans, and, the combined loan-to-value ratios should be reasonable. There are two types of home equity loans, closed end and open end; yet, the terminology refers to both of them as secondary mortgages because the property makes the security or guarantee of the borrowed value. Let’s see what the two variants of home equity loans involve.
With closed end home equity loans, the borrower gets a certain sum of money and is forbidden from borrowing anything further. The amount is determined by the value of the collateral, income of the borrower, credit history and other personal data. While some lenders will give you 100% of the amount of the appraised value of the house, most lenders will limit the borrowing to a lower percentage.
With closed end home equity loans, the paying-back period can extend up to fifteen years; the rates are normally fixed, with the mention that loan re-financing is possible on certain conditions. Open end home equity loans on the other hand are also called home equity lines of credit. The borrower has the freedom of choosing when and how frequently to borrow money against the value of the property, although there is a limitation to the credit imposed by the lender.
The difference between closed and open end home equity loans is that open end loans mostly have a variable interest rate and the line of credit can be extended (sometimes up to thirty years). Depending on the lender and the conditions in the financial agreement, the monthly payment can be as low as just the interest rate only.
If you are a UK homeowner and are looking for a home equity loan, fill out the form to the right for a free quotation. We will find you the best deal from a huge pool of lenders and a loans expert will phone you with the quote and also answer all of your questions.
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