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<td width="756" align="left" valign="top"><h1>Home Equity Loan -
Understanding the Basics of Home Equity Mortgage </h1>
<p>Home Equity Loan - Understanding the Basics of Home Equity
MortgageA home equity loan or home equity mortgage is an effective
second mortgage on your home, taken out after you have developed some
equity in your home. For example, if you purchase a home for $200,000
and you have paid $40,000 over the years against the loan principal
and the market value for the home is now $250,000, you now have equity
in the home of $90,000. Theoretically, you could apply for a $90,000
loan against the equity, but in practice, most lenders prefer to keep
the loan at 80% loan to value or, in this case $187,500. In this
example, a loan for $27,500 could be approved.</p>
<p>Definitions</p>
<p>Some of the definitions that you will need to be familiar with
include equity, mortgage, interest rate, loan fees, loan type,
principal and amortization. If you don't understand the meaning of
these words and others insist on an explanation from the loan broker
or lender. You can also do the research yourself so that you are
certain you understand the difference between an ARM and a fixed rate
loan and why you should choose one or the other, depending upon your
circumstances. There are some very good primer level books and classes
on almost any subject you can name out on the internet including that
of a home equity loan.</p>
<p>Terms</p>
<p>In the case of a home equity mortgage, the word 'terms' can
mean 'words' or it can mean the length of time before the loan is paid
off. A loan against the equity of your home often will have a longer
term than a personal loan. You may see terms of 15 years, 20 years,
even 30 or 40 year terms on the loan. Of course, the longer the term,
the more money in interest you will be charged and the larger the
percentage of funds you pay are for the privilege of using the money
rather than for the money itself.</p>
<p>Rates</p>
<p>The home equity loan rates are also called interest rate or
interest. Interest rates are usually structured in one of two ways,
although there are other types of loans as well. The fixed rate loans
set an interest rate up front and it remains in effect throughout the
term of the loan. The adjustable rate mortgage loan has an interest
rate that will vary according to a predetermined index or formula. For
example the rate may be two point above prime rate, adjustable not
more than twice every two years. These requirements will vary
depending upon the economy of the time.</p>
<p>Advantages and Disadvantages</p>
<p>A home equity loan or home equity mortgage has the advantage of
being a lump sum of money that you can use in any way you see fit--
presumably legal. It has the disadvantage of increasing your debt loan
and increasing the cost of money sometimes significantly. For example
taking out was is actually a second mortgage on your home may raise
your debt to value level to the point where private mortgage insurance
is mandated by many lenders. This can add thousands of dollars to the
repayment amount over the years.</p></td>
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