Irrespective of the different types, the equity loans posses all the advantages of a characteristic secured equity loan. Due to the tax benefits that you can enjoy in the interest payment, the home equity loan is pronounced over other loans mainly. The harmless nature of the secured loan helps to gain maximum benefits from the lenders.
Based on the appraisal of the home, the lenders will offer the maximum amount, in the minimum rate. However, by means of the interest rates and the method of payment, the difference in the types of loan is distinguished mainly.
Home equity loan is mainly classified into three types. They are
Closed Home Equity Loan
Closed Home Equity Loan is the most popular type of home equity loan. The approved loan amount is provided in lump sum to you in this type of home equity loan.
The interest rates will be fixed and you will have to pay back the loan amount in fixed interest rate for the specific period. For a maximum of 30 years, you can make use of the repayment schedule.
However, since the low repayment schedule will lower expenditure for the long term interest payment, it is preferred.
Home Equity Line of Credit (HELOC)
If you require money occasionally, the home equity line of credit (HELOC) loan will be appreciated. The lenders will transfer the approved loan amount of loan to an account in this type of loan, and you can avail the money, as you require.
The major advantages of this type of equity are the flexibility and the freedom to avail the money at any time during the prescribed period.
For only the amount you have withdrawn from the account, you have to repay the interest and if you wish, the principal amount can also be repaid and build up a revolving credit. However, within the prescribed period of time, you have to close the account.
The major disadvantage of HELOC is the adjustable interest rates that will result in the change in the amount of periodical payments.
Home Equity Refinancing
Home equity refinancing is another type of home equity loan. It is a first mortgage loan while closed home equity loan and HELOC are second mortgages. The first mortgage is refinanced for better rates and amount in the refinancing.
When you do not have much equity in the home, it is advised. When your home appraisal value is beyond the first mortgage, the refinancing will be helpful. However, while refinancing, the origination fees have to be considered.