Page 23 - Book6E

CHAPTER 3
Home Equity Loans
A Home Equity Loan is a loan in which a borrower uses the equity in his or her home as collateral for securing the loan. This creates a lien on the borrower’s home. These loans are sometimes used to finance major home repairs, medical bills, or college
educations.
Most home equity loans require good to
excellent credit history. They are usually
referred to as second mortgages, because
they are secured by the value of the prop-
erty, just like a mortgage loan. Home equity loans are usually, but not always, for a shorter length of time than the mortgage. It is sometimes possible to take the interest paid on a home equity loan as a deduction on income taxes.
Closed-end Home Equity Loan
The borrower takes the loan as a one-time lump sum of money. A number of variables affect the amount that can be borrowed. These include credit history, borrower’s income, and value of the property. Closed-end home equity loans are usually fixed rate loans and can be for as long as 15 years.
Open-end Home Equity Loan
This is a revolving-credit loan, often called a “line of credit,” in which the borrower chooses when to use the borrowed money. A limit is set
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No man’s credit is as good as his money.
— E.W. Howe