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Home equity loan
Do you need to tap into your home's equity to pay for a home remodeling project or to pay off a credit card? A home equity loan is a fixed or adjustable rate loan that is secured by the equity in your home.
With a home equity loan, you borrow a lump sum of money to be paid back monthly over a set time frame, much like your first mortgage. The terms home equity loan and second mortgage are often used interchangeably. The process for a home equity loan is similar to your first mortgage. The closing costs are usually lower as compared to a first trust mortgage and, although the interest rate is higher on a home equity loan, the interest paid is tax deductible with some limitations.
To qualify for a second mortgage, your credit must be in good standing. Otherwise you may be required to document your income. In any case, an appraisal will be required to determine your home's market value.
If you would like to utitlize the equity in your home but don't need all the funds at the time of closing you may consider a home equity line of credit (HELOC). These loans allow you to borrow as much as you need up to the high credit limit or not borrow anything! They are great to have as security for possible unplanned expenses and can be used as a financial planning tool.
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