Home Equity Loans
Home equity loans are loans where borrowers secure finance to purchase real estate property while using that property as collateral against the loan. These are the most common type of loan taken out by most people, and are probably the largest loans into which most of us will enter during the course of our lives. Home equity loans are granted to individuals with good credit record who can convince the lender of their ability to repay the loan during the course of its life. One significant tax aspect of these loans is that loan interest relief is often available which may be offset against personal income tax.
In the United States, there are two major types of home equity loans – open and closed-end loans. A closed-end equity loan is one where a fund transfer is arranged, and no further funds are made available to the borrower. The loan is determined according to the borrower’s credit rating, ability to repay the loan and the current value of the property, and loans of up to 100% of the property’s value can often be arranged. Closed-end loans are normally based on fixed-rate interest repayment schedules, and can be amortized for periods up to 15 years. Open-end home equity loans can choose when and how much to borrow against their property. The lender sets an initial debt level and like the closed-end loans, loans of up to 100% may be available. Open-end equity loans are normally based on a floating rate of interest, normally the national prime rate plus a previously agreed percentage margin.
Typically, there are a whole host of fees associated with taking out a home equity loan. Your property will need to be assessed to determine its market value. You will then need to employ the services of a conveyance professional. In addition, you will be asked to pay additional taxes such as stamp duty, arrangement fees, realtor fees and other costs associated with such loans. These extra payments can quickly mount up, and you should calculate these in advance to avoid any nasty shocks at a later date. Most of us will enter into a home equity loan at some time in our lives, so do your homework and make the loan work for you, and not the other way around.
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