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Home Equity Loan |
Home Equity Loan (HEL)
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Both home equity loans (HEL's) and a home equity lines of credit (HELOC's) are second mortgage loans which are secured by a home (secured meaning the home is collateral. If the borrower gets into trouble servicing the loan, the home could end up in foreclosure.) A HEL is like a first mortgage in that the interest rate is fixed, the borrower receives a lump sum at closing and the borrower will service the loan via amortized payments, typically for 15 years. A HELOC, on the other hand, is more like a credit card, in that the interest rate is variable (usually indexed to the Prime Rate) and the borrower can access as much or as little of a given credit line over the life of the HELOC. HELOC's also resemble credit cards in that borrowers are only required to pay the interest that's due at the end of each statement month. The repayment term can be as long as 30 years. Flexibility Also, with a HELOC, if Prime starts to rise, many lenders will let you convert your variable-rate HELOC to a fixed rate loan, allowing you to lock in a favorable interest rate. |
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