Bank home equity loan
Sometimes abbreviated as HEL, the home equity loan is a loan type wherein the borrower makes use of his home equity as collateral. A lien is created by the home equity loan against the borrower's house and the actual home equity is reduced thereby. Such loans are useful in financing medical bills, important home repairs, college education etc. Several banks, lenders and other financial institutions offer home equity loans.
Bank home equity loan' s usually are second position trust deeds i.e. second place liens. However, in certain special cases they can be considered as the first or very rarely the third position. To avail a Bank home equity loan , an individual should have good credit history. The other factors that govern these loans are combined loan-to-value ratios and reasonable loan-to-value.
Types of Bank home equity loan
Home equity loans can be divided in two categories closed end home equity loan and open end home equity loan. In case of a closed end home equity loan, the borrower is paid a lump sum during the closing of the loan period. After this, he cannot borrow anymore. The maximum loan amount one can borrow depends on the individual's income and credit history and evaluated value of the security. The borrower can avail nearly 100% of the estimated value of his property i.e. home.
Fixed rates govern the closed end home equity loans. It is possible to amortize these loans for up to 50 years. The home equity loans that offer abridged amortization are subject to balloon payments when the term ends. By paying the minimum monthly payment or by refinancing the home equity loan, one can keep the larger lump-sum payments at bay.
Open end home equity loan is also called as the revolving credit loan. In this type of Bank home equity loan , the borrower can borrow as much as he wishes to against the equity in his property. Based on all criteria similar to that of closed end home equity loan, the lender sets a preliminary limit to the credit line. The borrower can avail up to 100% of the value of his loan the credit line of which could be available for a time span of 30 years. Unlike closed end home equity loans, these loans are subject to a variable rate of interest, which includes a prime rate and margin. The minimum monthly loan payment never exceeds the due interest.
Bank home equity loan aspects
Most are likely to confuse home equity loans with home equity line of credit, abbreviated as HELOC. HELOC comprises of line of revolving credit that is subject to adjustable interest rate, while home equity loan comprises of a one-time lump-sum that is subject to a fixed interest rate. The fees that can be applicable to your bank home equity loan include appraisal fees, stamp duties, arrangement fees, closing fees, title fees, originator fees early pay-off and a few other costs. It is important for the loan applicant to get all the details pertaining to the fees right.
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