Home Equity
Home equity is one of the biggest assets most homeowners attain in their lifetime. Like an interest bearing savings account or a stock investment, home equity accumulates overtime with positive compounding interest.
Some homeowners choose to leverage the equity in their home and take out a second mortgage which is also called a home equity loan. There are two types of home equity financing, the home equity loan and the home equity line of credit. Home equity loans are closed end second mortgage loans that usually carries a fixed interest rate for a specific term. (15,20, 25 or 30-year loan terms)
The home equity line of credit is an open-ended second mortgage and it acts like a revolving credit card. Borrowers only pay interest on the money they access. In most cases home equity credit line rates carry variable interest rates.
Home equity rates have declined to record low levels in 2010 but home equity guidelines have tightened quite a bit in the last few years. Borrowers need more equity and higher credit scores to qualify for a low rate home equity loan these days.
