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Home> What is a home equity loanWhat is a home equity loan?A home equity loan is a loan that enables homeowners to borrow against the equity in their home. A simple example of a home equity loan is listed below:
As consumer loans go, banks like home equity loans because they are not as risky as auto loans, personal loans or credit cards. Home equity loans are typically second lien position loans. This means that in the event of a default, the first lien holder would have first claims on the home for the amount owed. In our example above, the mortgage company (or bank) would be entitled to $200,000. The home equity lender is the second lien position and would have claims to any proceeds above and beyond the $200,000. Repayment Home equity loans have terms ranging from 60 months to 360 months. On average, most terms typically last about about 10 years. Once you decide on a loan amount, your payment will be on a schedule of equal amounts based upon the term (duration) you selected. Also, your loan may come with a prepayment penalty. Always ask your home equity lender about prepayment penalties. To determine your rate, use the mortgage calculator below. Appraisal Most of the larger lenders use electronic appraisals to determine the value of your home. The value of your home is derived from comparible sales in your neighborhood. If you have remodeled your home in the past or have added custom features, you may want to ask your lender to conduct a site appraisal so you will obtain the full value of your home. LTV LTV does not stand for an off road vehicle or a Jeffrey Osborn band. It stands for Loan To Value. The next section, how home equity loan rates are calculated, will explain in detail the role LTV has on your rate. Loan to Value is ratio of the loan amount to the value of your home. Using our example above, if the bank wanted to lend at an 80% LTV, the maximum amount you could borrow would be $80,000. ($350,000 X 80% = $280,000 - $200,000). How are Home Equity Loan Rates Calculated Back To The Best Home Equity Loan Rates
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