What is a Home Equity Loan?
Let's first take a look at the name of the loan. It includes the words
"home", "equity" and "loan". I am sure you know
what the words home and loan mean but what about the word equity? The definition
of this particular word will vary upon dictionaries. However, according to the
online version of the Merriam Webster dictionary, the third definition states:
"the money value
of a property or of an interest in a property in excess
of claims or liens
against it"
The above stated definition provides a very clear definition to What is
a Home Equity Loan. However, the "excess" that is referred to in the
afore mention meaning may or may not be of any value especially in today's
economy. In order for the process to be worthy of everyone's time and efforts,
there must be an "excess" available.
This particular type of loan is only provided to those who own homes
and have equity in their homes. Yes, you may have lived in your home some time
now and to you, your home has value but if your home does not have value, then this type of loan is not an option. The
financial institution will verify if your home or property for that matter does
indeed have value above and beyond the amount of any current loans/liens that
may currently exist.
The determination for the value of your home is made by having your
home or property appraised and also compared to the value of other
homes/properties in the area. Once this value has been established, then the
financial lender will compare that amount to the balance, if any, owed on the
property as well as to any other outstanding debts that you may have. Of
course, your income and past credit history will also be reviewed and
considered if a home equity loan would be feasible for the applicant.
For example, if you are wanting to obtain a substantial amount of money
to reduce your monthly debt (let's say your bills) and you are considering the
amount of $50,000 would be sufficient. In order for you to even consider a home
equity loan as an option there must be more than $50,000 of current equity in
your home. If you don't and you still want to proceed with this type of loan,
you could receive a lesser amount or be denied altogether.
If it is determined that the difference between the appraised value of
your home is much greater than your outstanding debts, then it is very likely
that you will easily qualify for this type of loan. If approved, the loan will
work just like any other type of loan in which you make monthly payment until
the loan is paid off. If you choose to make additional payments, you can
however be sure that there are no terms within the loan stating that you cannot
do this. Generally speaking, extra payments can be made and placed against the
principal but the loan cannot be paid off within the first one to two years of
the loan.
It is still possible to find Cheap Home Loans, you just have to know where to look.
