Home Equity Loans: Choosing a Loan and a Repayment Option

by Karen Lawson
Loan Page Columnist

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You've heard the joke: "I owe, I owe, so off to work I go." But with careful planning, you can use some of your home equity to take care of major expenses. When shopping for a home equity loan, it's a good idea to do some advance planning and research.

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Home Equity: A Financial Tool for Fixing Your Budget

It's important to do some research and planning before approaching lenders for a home equity loan. Here are a few things you should know in order to find a home equity loan that best accommodates your budget.
  • » Your home's present market value
  • » The amount of equity you have in your home
  • » Estimated major expenses (what you need money for today, and what you will need money for later)
  • » How much you can afford to repay each month

Getting the Loan You Need vs. Getting the Loan You Want

The amount of equity in your home can change depending on factors such as:
  • » The terms of your first mortgage
  • » Fluctuations in the real estate market in your area.

If you bought at the peak of a real estate boom, you may want to think twice about taking out a home equity loan for non-essential expenses.

What are the Options for Repaying a Home Equity Loan?

There are a variety of home equity loan products with different payment options available. You can take out a second mortgage loan that is amortized over a period of years and requires monthly payments. Or, your loan may require small initial payments with larger payments toward the end of the loan term. Another option is a "silent" equity loan that requires no repayment until you sell your home.

Be sure to ask questions of your lender, and seek the advice of a financial advisor to determine the features and benefits of the home equity loan that's best for your needs.

Sources
Fannie Mae

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage lending. She has an MA degree in English.

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