What is a Home Equity Loan? If you have ever been a little confused about this oft-tossed-around term, you’ve come to the right place for a little clarification.

After reading this article describing what a home equity loan is you have gained an extra pound in knowledge about Home Equity loans. But not to be worried you don’t need to have a abnormal high IQ to understand the basics of home equity loans for you to obtain an answer to your question “What is a Home Equity Loan?”.

A Home Equity loan is based on the appreciated value of your property, the increase in the value of your house will be the collateral for your loan.

What is Collateral?

In this particular circumstance Collateral is property you put forward as a guarantee that you will repay the debt you owe.

If you default paying back your loan, the lender can take your collateral and sell your property on the open market to recuperate the amount due.

How much could I borrow?

If your house is appreciated in value, which depends on various factors the Equity of your property is calculated by taking the following factors into account.

The difference between what your property is currently worth and how much you still owe on the initial mortgage.

Example:

Your house is bought for $500,000 and you have paid off $225,000 of a $500,000 mortgage. A recent appraisal puts your home’s value at $850,000. Then to calculate your current equity in your house the sum would look like this:

$850,000 – $275,000 = $575,000

The $275,000 number is the amount of money still to be paid on your mortgage. Because your property has appreciated in value the equity in your home has increased.
This increase in equity allows you to borrow a sum of money based on this increase in value and your property serves once more as collateral.

How to apply for a Home Equity Loan?

Obtain multiple quotes to have a variety of options to choose from so you can have the best solution for your credit needs.

Start your online equity loan application here and receive multiple quotes from various lenders who compete for your business, so you have the most competitive rates.

But what is a Home Equity Line of Credit?

Now that your question “What is a home equity loan?” is cleared up, you might be asking yourself, What is a home equity line of credit?

Continue reading about>> Home Equity Loan and Line