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Home Equity
Loans-Types of Loans
There are probably
20-30 variations of the home equity loan but the two most popular
types of home equity loans are called "open" and "closed." The
"open" loan or a line of credit sometimes called a HELOC. In this
loan usually the interest rate is variable tied to the prime rate
and the term of the loan can range from five to thirty years.
Because the rate
is variable the payment amount is as well which might be
problematic. Lenders often offer a special introductory rate as an
added incentive. Usually loan closing costs are waived and the
application process is limited to ability to pay, credit score,
length of time in the house and a drive by appraisal-so a relatively
simple process.
In this type of
loan Bill and Mary can draw down on the credit amount as they
need/want to with very few restrictions. They might even set up
interest only payments leaving the balance or a balloon payment for
the loan amount due at the end of the term.
The other type of
loan is a "closed" loan where the amount is a fixed amount for a
fixed period at a fixed rate with set payments so at the end of the
term the loan is paid off much like a regular installment loan.
Both loans are
secured by second mortgages on the property. The terms of these
loans can range from five to thirty years. They are almost always
shorter than a first mortgage loan.
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