A home equity loan is a loan that is made to a person whose equity has built up in their home. Equity is the amount of the loan that you’ve already paid in that has gone toward the principle amount of the loan. So, for example, on a $150.000 loan, which you’ve been paying in on for about 10 years, about $10, 000 of that has already been repaid on the principle. The equity you have in your home is then, $10,000. To determine how much equity you have built up in your home, simply contact your loan servicer. Better yet, many monthly statements will let borrowers know how much equity they have built up in their homes.
There are some criteria for drawing out that money, however. So, simply having the equity may not immediately qualify you to draw it back out. Home equity loans require you to have a fairly decent record of payment, with no late payments or defaults. Additionally, there are different types of Home Equity loans.
Learn About Types of Home-Equity Loans
In the US there are two types of lines of equity that a person can apply for: Fixed Rate Loans, and ARM Loans. The fixed rate loans will stay at the same interest rate, even if the average interest rate fluctuates in the economy. In other words, you are locked in. The ARM is a variable interest rate, which can help or harm you depending on what the economy is doing. So some months, your payment may be quite low because the interest rates adjusted. OR, conversely, it can be higher because the interest rates have elevated. If the payments are not too exorbitant, then the ARM might still be the way to go, but if the amount drawn out is significant, or the payments per month are pretty steep, then you will want to lock in that interest rate.