1. What is a home equity loan?
A home equity loan is a loan that is borrowed using your home’s equity as collateral. The amount of equity you have in your home can be calculated by taking your home’s value and subtracting off how much money you still owe on your mortgage. Since you are using this equity as collateral, if you fail to pay back the loan, your creditor can sell your house to get its money back.
2. How much money can I borrow?
Well, that depends on several factors, including your credit history and current income, but usually lenders will let you borrow until you reach a loan-to-value (LTV) ratio of 80%. The LTV ratio is is simply how much money you are borrowing (original mortgage + home equity loan) divided by your home’s value. For example: if your home is worth $100,000 and you owe $50,000 on your mortgage, your LTV ratio is 50%. So you will be able to borrow $30,000 for your home equity loan and your total loans ($50,000+$30,000 = $80,000) divided by your house’s value ($100,000) will be at the 80% LTV ratio.
3. Why do people usually take out home equity loans?
The most common reasons people take out home equity loans are for paying off high interest credit card debt, major home repairs, college tuition expenses, medical bills, or even just to buy a car or boat.
4. What are the advantages of a home equity loan?
- Lower interest rate than other types of loans
- Ability to get a relatively large amount of money (depending on the amount of equity you have in your home, of course)
- Payments are often tax-deductible
5. What are the disadvantages of a home equity loan?
There are none! Go get a home equity loan right now!
Only kidding. The main disadvantage is that you’re putting yourself in jeopardy of losing your house if you can’t pay back the loan. So if you’re confident in your ability to pay back the loan, or if you just don’t mind losing your home and living on the street, then there aren’t too many downsides to taking out a home equity loan.
6. What is the difference between a home equity loan and a home equity line of credit (HELOC)?
A home equity line of credit is just that - a line of credit. You get approved for a certain credit line, you can borrow up to that amount, and you only pay back what you’ve borrowed. A regular home equity loan is just a lump sum loan that must be payed back in a certain amount of time.
7. Is a home equity loan right for me?
It all depends. See what kind of rates are available. If you’re currently paying off some high-interest credit cards, a home equity loan might save you some money.
8. Where can i find the best rates for home equity loans?
Bankrate has a nice feature than lets you compare home equity rates in your area.
9. What is the airspeed velocity of an unladen swallow?
What do you mean? An African or European Swallow?
10. How many stockbrokers does it take to change a light bulb?
Dear God! It burnt out!! Sell all my GE stock NOW!!!!
(Ok, so that was only 8 real questions about home equity loans, but 10 is just so much nicer than 8.)
