Home Equity Loan-which One Is Right For You?

Home equity is the difference between what your home is worth and the amount you owe on it. For most homeowners their home is their biggest asset and source of cash.

The two most popular types of home equity loans are called "open" and "closed" loans. The open loan is a line of credit sometimes called a HELOC which stands for Home Equity Line Of Credit. In this loan the interest rate is usually variable and tied to the prime rate and the term of the loan can range anywhere from five to thirty years.

The other popular type of loan is a "closed" loan or a closed end loan. The amount borrowed is for a fixed amount for a fixed period at a fixed rate and with fixed payments. This loan is paid off much like a regular installment loan. Both loans are secured by second mortgages on the property.

Home Equity Loans are sometimes referred to as second mortgages

These days, there are many HELOC programs with fixed rate advance features. They give the borrower the ability to take out mini-closed end loans within the HELOC, giving you the best of both worlds.

Home Equity Loans are normally taken out where you have a low first mortgage rate and it does not make sense to refinance your first mortgage.

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