What is the difference between a Home Equity Loan and a Home Equity Line?
Home Equity Loans A Home Equity Loan (also referred to as a second mortgage) borrows money from the equity built up in your home. Your equity is determined by subtracting your unpaid mortgage amount from the current value of your home. For example, if you have a home that has recently appraised for $300,000 and you have an outstanding first mortgage of $125,000, your equity equals $175,000. The lender will typically allow you to borrow 70%-80% of your equity. This would amount to $140,000 as your maximum loan amount. A Home Equity Loan has a fixed rate and monthly payment and usually has a term of 5-25 years. You receive a one time lump sum. It has the same advantage as a first fixed-rate mortgage- the security of knowing your payments and interest will remain the same for the entire life of the loan. Keep in mind that the costs of your home equity loan will be similar to those incurred when you obtained your first mortgage. The same documentation (verifying assets, liabilities, income
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