In the last 10 years the value of the house significantly increased and not predictable in advance. There are even some areas, home prices increased many times over in just a short time. This resulted in many homeowners who build significant equity value for their homes.
Equity is the difference between the value of their own homes with a value of bank loans for their home. For example, if your house is worth $400,000 and your outstanding loan balance $300,000, so the value of home equity is $100,000.
Most banks provide facilities homeowners to access the equity in their homes through home equity loans. With this type of loan homeowners can borrow their home equity to get cash for various purposes such as paying tuition, buy a new car or home renovation.
If you have a plan to get a home equity loan, here are three common ways you can use:
1. Through the Internet
This is a fun new way to get a loan. Most major banks have the facility to apply online loans, including home equity loans. In this process you will be asked to fill in the data on the basic application information and request an appraisal for your home. After that you will receive the final paperwork via mail or you will be asked to come to the local branch to complete your loan transaction.
2. In person
The second way is the most widely used way to get a home equity loan by visiting a local bank or savings institution to meet and speak directly with a loan specialist. Loan specialist will guide you with some simple paperwork, requesting an appraisal for your home and then process your loan.
3. By phone
The third way is to call the bank of your choice and tell them that you want to get a home equity loan. Usually they will guide you as when you do it in person.
Different from the mortgage loan, the home equity loan paperwork process considerably less involved. To determine the value of your home equity loan, usually a bank will do a credit check and ask for an appraisal on your home. Value of the loan you will get typically 80% to 90% of the value of your home. This means you'll save 10% of your home equity.
Before you decide to take a home equity loan, there are several things you should seriously consider include:
1. Generally loan rates are variable
If you take out a loan when the loan rate is at 6%, this means that your payments will be lower than if the loan rate is increased to 7% or 9%. Loan rate is very unpredictable and volatile at any time. According to history, the interest rate for home loan between 5% to 19%. Maybe you can afford at 5%, but when the rate rose significantly, then you will get your payment increased by 4-fold. So, are you ready with this possibility?
2. Understand all the terms of your loan rate
Some home equity loan will feature caps on rates, while some others do not. Some home equity loans to be written with the time period in which the fixed rate and variable later.
3. Understanding the repayment terms on your loan
Banks will want their money back, just as applicable to other types of loans. Make sure your loan repayment terms are agreeable. Some home equity payments have swelled after the predetermined period of time. This means that you should set aside a larger amount on a several dates. And because this loan using your home as collateral, then you should familiarize yourself with the existing terms and you should be ready to comply.
4. The loan is secured by your home
This means that if you default on your home equity loan, then the bank will foreclose your home. And for the record that the debt can not be eliminated by declaring bankruptcy.
So, the conclusion is that you have to make sure that the loan is completely according to what you are looking for before you sign the final paperwork. Home equty loan can provide a great benefit to you as well as have a shortage, so make sure you understand and agreeable with the terms of your loan.
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