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Home Equity Loans and Home Equity Lines Of Credit defined ...

There are two types of home equity debt: Home Equity Loans and Home Equity Lines Of Credit.

Both are sometimes referred to as second mortgages, because they are secured by your property, just like the original, or primary, mortgage.

Home Equity Loans and Home Equity Lines Of Credit usually are repaid in a shorter period than first mortgages. Most commonly, mortgages are set up to be repaid over 30 years.

Home Equity Loans and Home Equity Lines Of Credit often have a repayment period of 15 years, although it might be as short as five and as long as 30 years.

Home Equity Loans

WHAT IS HOME EQUITY OR LINE OF CREDIT

A Home Equity Loan or Line Of Credit allows you to borrow money, using your home's equity as collateral.

What's Collateral?
Collateral is property that you pledge as a guarantee that you will repay a debt. If you don't repay the debt, the lender can take your collateral and sell it to get its money back. With a Home Equity Loan or Line Of Credit , you pledge your home as collateral. You can lose the home and be forced to move out if you don't repay the debt.

What's Equity?
Equity
is the difference between how much the home is worth and how much you owe on the mortgage (or mortgages, if you have more than one on the property).

Example:

Let's say you buy a house for $200,000. You make a down payment of $20,000 and borrow $180,000. The day you buy the house, your equity is the same as the down payment -- $20,000: $200,000 (home's purchase price) - $180,000 (amount owed) = $20,000 (equity).

Fast-forward five years. You have been making your monthly payments faithfully, and have paid down $13,000 of the mortgage debt, so you owe $167,000.

During the same time, the value of the house has increased. Now it is worth $300,000. Your equity is $133,000: $300,000 (home's current appraised value) - $167,000 (amount owed) = $133,000 (equity)

Precise Mortgage Lending can help you turn equity into cash, allowing you to spend it on home improvements, debt consolidation, college education or other expenses.