Information Center, Loan Types
Home Equity Loan
October 9, 2008 by Mortgage Align · Leave a Comment
How does a home equity loan work?
A home equity loan is a type of loan in which the borrower uses the value of a homeowner’s unencumbered interest in their property (equity) in their home as collateral. These home equity lines of credit loans create a lien against the home and thus reduce the home’s equity. Majority of borrowers use the home equity loan type to pay off high balances on credit cards.
There are two types of home equity loans:
- Closed End – the borrower gets a lump sum at closing
- Open End or HELOC (Home Equity Line Of Credit) – the borrower can choose when and how often they borrow against the property within their credit limit.
The Benefits of Home Equity Loans:
- Easy source of cash
- Lower interest rates than credit cards or other consumer loans
- Help finance home repairs, medical bills or college education
