Home Equity Line of Credit is a type of mortgage loan where the borrower provides his or her home as the collateral for the loan. These loans are provided in two different types but the basic requirements of the loans are almost same.
Home Equity Line of Credit is a secured loan and the equity in the borrower's home is used as collateral in these loans. These loans can be availed for a number of purposes. By availing home equity line of credit, the original equity in the borrower's home is reduced because a kind of lien is developed against the collateral. Mostly the home equity line of credit is found as second trust deed. The first trust deeds or the third trust deeds are also in use but these are not so popular as the second trust deeds.
Requirements of Home Equity Line of Credit
There are several requirements that should be fulfilled in order to avail the home equity line of credit. The prime requirement of these loans is good credit history. The borrower should have good records of debt payment and must be provided with good credit scores by the credit bureaus. Loan-to-value ratios play an important role in the approval of these loans.
Types of Home Equity Line of Credit
These loans are offered in two different types, closed end home equity loan and open end home equity loan. These loans are commonly known as second mortgages. It is termed as second mortgage because the total value of the home is considered as collateral. This is a practice that is done in the traditional mortgages. Both these loans have been designed for short tenures but there are provisions for the extension of these loan tenures. The interest paid for home equity line of credit also provides some sort of tax relief to the borrower.
Facts About Closed End Home Equity Line of Credit
These loans are approved for a maximum tenure of 15 years. These loans are normally offered with a fixed rate of interest. Maximum amount that is offered by these loans depends on a number of factors like credit record, value of the collateral and so on. There are also the options of reduced amortization but availing these options would cause in a balloon payment at the end of the loan tenure. One can use the available loan refinancing options to avoid huge installments at the end of the loan tenure.
Facts About Open End Home Equity Line of Credit
These loans are offered for a longer term than the previous one. In these types of loans the borrowers are offered with the option to decide about the proper time to borrow and also about how many times he or she wants to borrow. The maximum amount that can be offered as loan is decided by the borrower. These loans follow a variable rate of interest and the repayment installments can also be reduced.