Getting the Right Home Equity Loan

There are three different types of home equity loans. There are home equity loans, cash-out refinance, and home equity line of credit. Finding out on which loan you will need depends on two things. First, what do you plan on doing with the money, and second, if you want to get your loan in one lump sum, or individual payments.

Home equity means the difference of what you currently owe on the property and the properties current total value. If you have a new mortgage loan on your property, the down payment of that loan would represent the home equity.

A home equity loan is a second loan that you take out after you have taken out a first mortgage. A first mortgage is in the first lein position, which takes over all priority over every other lein. If you happen to have a foreclosure on your property, the first mortgage lein will have to be paid off first to the lender before any other leins are paid. Home equity loans are a great way to go if you want all of the money in one lump sum, because it takes less time to complete than refinancing your first mortgage. You can use this money for various reasons, such as, paying off credit card depts, pay off student loans, financing a second home or paying off medical bills. This money will be in the lump sum, which makes it easier to pay off bills such as the ones stated above.

Cash-out refinancing means that you are refinancing a loan that you already have out to a larger amount. You will be taking the difference of the new refinanced loan and the old one in cash. This is a good idea to do if your home mortgage has higher interest rates than the current market rates. You will be getting this money in one lump sum also and is good to use for paying off large depts such as medical bills and student loans, etc.

A home equity line of credit is great if you need to pay off smaller amounts of money at intervals, because this type of equity loan lets you get your money, not in a lump sum, but in smaller amounts as time goes on. It works much like a checking account or a credit card. This way is better than a credit card, becuase the interest on a home equity line of credit is usually tax deductible. Always check with your current tax consultant before making any decisions about your home equity. Getting your money in smaller amounts enables you to pay constractors as they will need their money in different amounts at different times. You may have many different contractors to pay, so having a home equity line of credit will ease your financial worries for awhile.

With a home equity line of credit, you will also have the opportunity to get a lump sum at closing, which is also known as settlement cost. The settlement cost is the cost you must pay for services for closing out your loan application. They will charge you for such services as, title fees, closing fees, appraisal fees, pest inspection, attorny fees, etc.

If you have to have a home equity loan, figure out what you need the money for. As you can see there are different types of loans to be had and getting the right loan will be a benifit to you. Remember aslo to always talk with your current tax consultant before making any decisions about your home equity credit.

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