What you Need to Understand About Home Equity Loans & Refinancing
The terminology surrounding home loans can be confusing with terms such as home equity, home equity loan, and home equity line of credit being used in relation to refinancing. Hopefully this information will help you with understanding them as well as help you find out what options can benefit you the most.
Equity is the difference between the amount of money you own on your home and the value of it. If your home is valued at $120,000 and you still owe $50,000 to the lender then your amount of equity is $70,000. You can take out a home equity loan using your home as collateral. You will get a lump sum amount of money from the lender with an agreement to repay the money in monthly installments. If you don’t repay the loan then the lender can repossess your home and sell it to get their money back.
A home equity line of credit is similar to a credit card. You will be able to access the credit limit set by the lender as you need it and then pay it back on a monthly basis. The amount you will have to repay each month will depend on the amount of your balance. If you have a line of credit up to $5,000 and you use $1,000 of it then you will have to start paying that $1,000 back immediately.
However you can still continue to access additional funds against the line of credit as long as you are making at least the minimum required payments. It can be to your advantage to obtain a home equity refinance loan, especially if rates are now lower than when you got the original loan. This can save you a substantial amount of money in interest payments.
Equity loans are a great way to help anyone be able to afford their monthly payments again. To get started talk with your lender and find out what you may be qualified for as well as to compare the rates on the different options.
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