Home Equity Loan Programs
A Home Equity Loan has become an increasingly popular way for consumers to borrow money, especially with the continued increases in interest rates on credit cards. Your home equity is the percentage of the home that you own; it's the difference between the current value of the home and the amount you still owe on your mortgage.
Home equity loans have allowed millions of Americans to take control of their debt. The average household now has nearly $10,000 in credit card debt, and borrowing against the value of your home can allow you to pay those bills through debt consolidation. The interest on a second mortgage is usually tax deductible, something other types of loans haven't offered in more than twenty years. A line of credit can offer the opportunity to borrow money on a revolving basis.
And the payment schedule can be arranged over a specific amount of time, which offers the homeowner the convenience of scheduled payments. This type of financing offers several advantages over other types of borrowing. Interest rates tend to be lower, and are often half the rate of credit card loans.
This type of financing is considered to be a secured loan. The financing is granted by the lender using the portion of your house that you own as collateral. If you purchased your house for $100,000, and you have paid off $20,000 of the principal, and the value of your house has increased in the meantime to $120,000, then you now have $40,000 in equity, and you can borrow money against that in the form of a second mortgage.
For most people, their house is their biggest single asset, and they are reluctant to lose it. As such, the default rate on such financing is much lower than average; about 2% typically. For the lender, this type of financing offers greater assurance that the amount borrowed will be repaid. The borrower benefits from the lower interest rates offered with “safer” financing.
