To start with, these are amongst the cheapest in the loan marketplace.
Sometimes we come across certain situation when we need a large amount of funds to maintain our needs. It may be to complete your college education, pay medical bills or may be to consolidate money owing. In such situations we mostly look at various finance options but it is really hard for an individual to get a enormous amount of loan. To avail a loan without provided that collateral worth its amount is just not an easy task. So home equity loans are a great alternative in such situations.
A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral.
Equity can be defined as the difference between the market value of your home and the amount which you are obliged on it.
It can also be recognized as the financial value of a real estate property further than any sum you is obliged to it for claims, loans or mortgages.
This kind of a loan is secured as the lender gets the home as collateral and the loan amount depends on the amount of equity.
The borrower is only authorized that amount of loan which is equal to her/his equity. This makes them secured loans because at this time the lender is sure of receiving back the loan amount even if the borrower defaults.
Typically, home equity loans are offered at much lower interest rates than other kinds of financing, such as credit cards and personal loans. There are superior repayment periods that range between 5 years and 30 years and you can easily choose the one that suits your repaying capacity. The EMIs on this loan depends on the same factors in which a typical EMI rests such as the amount of loan applied for and the reimbursement time selected. Likewise even the interest rate varies the EMI.
These loans are categorized in two types -- A home equity loan or a second mortgage and home equity line of credit.
A home equity loan or a second mortgage is the arrangement through which one can borrow an amount worth your security in a lump sum. With this type of home equity loan, interest begins building as soon as the bank issues you the money. Such a loan is salaried off by the borrower over a fixed amount of time, comes with a fixed rate of interest and fixed monthly payments. It is also known as a close ended loan.
On the other hand, there is home equity line of credit that is more like a credit card. It facilitates the borrower to borrow in installments. Here the borrower is issued a cheque book or a credit card by the bank which s/he can use against her/his home's equity to make purchases. S/he can borrow only a sure sum of loan money which s/he needs instead of borrowing and maintenance the total lump sum.
The interest rate in this type of loan starts building only when the person actually makes a purchase.
A line of credit home equity loan has a supple interest rate that varies throughout the loan term and consequently, monthly expenses also vary depending on the varying home loan rates.
Home equity loans are a potentially money-saving option for homeowners who want to consolidate debt. They are with no trouble accessible to any individual depending on her/his trustworthiness and are also very helpful in conditions of the tax rebate that they offer to the borrower.
There are likely tax deductions on home equity loans where as other personal and consumer loans typically have no tax deductions and higher interest rates. It makes them one in the middle of the cheapest in the loan marketplace.
Even bad credit borrowers are providing these loans as they are considered risk-free from the lender's point of view. Bad credit people just need to offer their annual income and employment documents to the lender in order to avail such a loan.
Home equity loans are provided by approximately all public, private banks and housing finance institutions. However the approval of such a loan depends on the lender's policy and it is the lender who decides how much it is ready to give you for a home equity loan. But it is always improved to compare with all the rates that are offered by various home equity loan providers.

Author's Bio: 

Finheal is writing blogs and articles on financial background.