Home equity lines

A home for living is one investment that everyone dreams when he reaches mid life. Buying a home is the heaviest financial commitment one makes and hence it calls for a very critical analysis of the main factor CREDIT. If you are contemplating to buy your dream home and if you are in need of money, equity home lines might be a good solution to find a credit. They offer you big cash at comparatively low interest rates. You may even be eligible for certain tax deductions, which is an added advantage over other kinds of credits.

Even though the home equity line of credit calls for giving your home as security, home equity line of credit offers you easy access to money at times of need. So if you are confused and cannot decide if home equity line of credit will benefit you in the long run, it is recommended that you consult a financial adviser before applying for a home equity line credit.

Types of loans

Let us start with different types of loans available. All types of loans fall into two basic groups mortgage and home equity loan. Mortgages are simply loan against property that is secured with a lien on the property. The lien will be there on the property till the loan is paid back.

A home equity loan is also a loan that is secured with lien against the property. The home equity is secondary to the first mortgage on the home. The loan amount is based on the amount of equity in the home, which is nothing but the difference between the value of the home and the amount owed on it.

Alien is simply a legal term indicating that someone other than the owner of the house has a legal right or interest in the property. So if the property is ever sold all the liens must be settled otherwise the new owner will be obliged to settle them. Also a lien is always against a property and not a person. There can be multiple home equity loans on a property. In such case the order of repayment is in the oldest to the recent one. This is applicable only in cases where the property is sold for below that what is owed.

Interest rates applicable

Within the above two types of loans there are Fixed Rate Mortgage loans (FRM) and Adjustable Rate Mortgage (ARM) loans. As the name indicates Fixed Rate Mortgage loan is a loan that has the same rate of interest from the day the loan is granted till the day it is paid unless it is re-financed. FRM or ARM will usually start off for a period of time at a specified rate of interest and then if the loan has not been paid off or re-financed then the rates re adjustable based on the conditions agreed upon. This is generally dependant on the federal rates.

An ARM will have a three to five year period for which the rte of interest will be less than the market rtes. This is mainly to lure the to-be borrowers or to help the borrower by way of lower repayment in the initial years.

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