Saturday, June 13, 2009

Home Equity Refinancing and Home Equity Loans

What are home equity loans, home equity lines of credit, and home equity all about and what is the deal with home equity refinance? The following article will help you answer all of these questions.



For starters, equity is the difference between the money owed on your property and how much your property is worth. For instance, if $130,000 is the price you can sell your home for and you owe $40,000 against its mortgage, $90,000 is the total amount of equity the property has accrued.



A home equity loan is simply a loan taken out based on this $90,000 figure. This loan is a one time lump sum paid off over a couple of months, similar to a mortgage.



A home equity line of credit can be compared to how credit cards work. With this type of credit, you borrow a dollar amount, use it, and pay back your creditor just like that AMEX card in your wallet. For instance, let's say your line of credit is $5000. $1000 goes towards a down payment on a car, and then monthly payments are made on that $1000. Although monthly payments are going directly towards that $1000, another $500 can be borrowed against your $5000 line of credit which would allow you to keep making payments on the final amount that you borrowed from the $5000.



When you file an application for this type of loan, your home is used as collateral. This means your house would be given up in case of defaulted payments. If your debt is not repaid, the lender can take away your asset legally which means your home, which is used to sell to recover the remainder of the debt.



A home equity refinance is also recommended in some cases. If your original home equity loan was doused with an outrageous interest rate, refinancing the loan allows you to save money every month. If monthly payments are becoming harder by the day, refinancing can change that. All it takes is an inquiry with your lender along with an explanation that will blaze the path towards a new home equity loan.



by Charley Hwang

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