Improving Home Through an Equity Loan

Improving home is easy with home equity loans that allow borrowers to borrow money from a bank or lending institution on top of what they are currently paying on. Home equity loans are normally used to finance home improvements, college tuitions, bills, or any other emergency expense. This type of loan is more commonly referred to as second position liens or 2nd mortgage given that it is guaranteed against the value of the property. A home equity loan uses the equity of the borrower’s home as security or collateral. What is good about home equity loans is that they create a security interest or lien against the borrower’s property and lessens the actual equity of the property.  

Not all individuals qualify for a home equity loan. Only those with good credit history or rating and financial capacity are granted approval. Granted loans are given in lump-sum with fixed interest rate. Practically, the interest rate is based on the prime rate and additional margin.  

Borrowers are advised to learn and be well-versed with some important terminologies such as recourse and nonrecourse loan; dischargeable and non-dischargeable debt; and secured and unsecured debt, as these terms are often used in home mortgage loans. A nonrecourse loans or debts refer to a secured loan or debt guaranteed by collateral, usually real property, but for which the borrower has no personal liability. A recourse loan on the other hand makes the borrower liable as opposed to nonrecourse. Knowing and understanding all important terms enables each borrower to explore all the best possible loans for his or her capacity.