To be able to get the best home equity lenders, it is important to understand and appreciate what a home equity loan is, its use, importance, and how it is disbursed. The loan is also referred to in other quarters as 2nd mortgage. It is usually affected a lender lets a homeowner borrow some cash against the equity in his home. It is normally paid monthly in addition to the mortgage that the homeowner is currently paying. It is important to note from the onset that with this kind of loan, you are basically placing your home as a form of collateral for the loan you are taking and in the event that you default on the loan, then the bank can as well take your home. It is also important to realize that this loan does reduce your equity on the home because if you sell the home, you will be expected to pay off the two mortgages with the proceeds before taking any money.
Generally, the amount you can borrow from a second mortgage is dependent on the equity you have on your home and hence the name. In this regard, the term equity refers to the difference between the current value of your home and your outstanding debt on the mortgage. The lender uses your equity figure as well as your income and credit score to determine the amount of loan you will receive. Many lenders allow homeowners to borrow up to eighty-five percent of the equity of their home.
If you succeed in getting this loan, you are given the whole amount in a lump sum or all at once. However, you will be expected to pay off the equity loan within a maximum of fifteen (15) years for most lenders, even though this period does vary from one lender to the other. The interest on this loan is usually fixed and doesn’t fluctuate as in a normal bank loan.
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Just like the initial mortgage, these loans also require you to offset closing costs which can range between three (3) to six (6) percent of the loan amount. It is therefore important for one to do some shopping and meet as many vendors as realistically possible because the terms and conditions tend to vary from one lender to the other and the differences can be quite substantial. Other fees that you will be required to pay include early pay –off fee, originator fee, Title fee, Appraisal fee, etc.
Since you receive the loan at once and it is your money, there is really no restraint as to what you can or can’t do with the money. However, many lenders and financial advisors recommend that homeowners use the money to offset large, one-time expenses such as offsetting your child’s tuition, undertaking home upgrades, repairs or remodeling projects as well as paying off credit card debt. This does make sense since, in most instances, the interest charged on home equity loans tend to be much lower than that charged on credit cards.
It is also worth mentioning that at times, the interest that you pay on your second mortgage is tax-deductible, this can act as a financial bonus if it applies to your case. When choosing a lender, it is very important to read the fine print of the loan document and get to understand and appreciate all the conditions and contingencies mentioned therein.
With a clear understanding of what a home equity loan entails and an appreciation as to where and how it should be used, here is a brief look at some of the best home equity lenders in the market currently.