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2008-03-31 01:44:27
What Is a Home Equity Loan?
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 What exactly is a home equity loan?
A home equity loan, also known as a "secured loan" or "second mortgage", is a loan that is secured by the equity in your home. Meaning, you own a home or flat and currently have a primary mortgage on the residence. A second company would lend you more money based on the current equity that you have in your home, and in exchange they would be added onto your mortgage as a second mortgagee.
You may ask yourself: why on earth would I want to add another company onto my mortgage? Why wouldn't I just take out an unsecured loan instead?
There are many reasons why a home equity loan is beneficial compared to an unsecured loan (obviously, or else people would never take out home equity loans). The reasons are:
1. Much lower interest rates. This makes sense of course - because you are pledging collateral for the loan via the equity in your home, you are a much lower risk to the lender. Because you are a much lower risk, you will pay much lower interest rates. A typical interest rate for a secured loan might be 8-9% APR, whereas a typical loan for an unsecured loan can be anywhere between 15-30%! This is a massive difference over the life of a loan.
2. Greatly increased borrowing power. You will have a hard time finding an unsecured lender who will let you borrow more than 10,000 pound. With a secured loan you can borrow all the way up to 100k pounds. To determine how much you would be eligible to borrow, simply take the total appraised value of your home and subtract any and all mortgage and secured loan balances from the figure. This will leave you with your total borrowing power. As you can see, the equity in your home affords you quite a bit of borrowing power.
3. Flexible repayment schedules. With a secured loan, you can take up to 25 years to pay the loan back. With an unsecured loan, the normal maximum repayment schedule is either 5 or 6 years. If you need to borrow a sizable amount of money then this can make a big difference.
A home equity loan can be a very prudent way of utilizing the equity in your home if you need to borrow a sizable amount of money. Banks tend to be more willing to lend money for purposes of debt consolidation or home improvements, because in both situations the borrower is bettering their financial situation.
Apply for a Lending Place secured loan today!
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