A home equity loan helps homeowners get their household back on the track by providing the needed financial assistance. FAQ’s will help you make the picture all the more clearer and simple.

With the increasing popularity being associated with home equity loans it is very common for doubts and queries to arise in the minds of people regarding the construction and working of these home equity loans. at finance-strategy.com you will find a compilation of the most frequently asked questions pertaining to home equity loans which will be capable enough to handle your questions.

1. What is the need of a home equity loan?

   A home equity loan is designed to serve you in situations when you might feel the need of immediate cash to take care of your home improvement expenditures or may be your child’s educational expenses or it may be for the purpose of consolidating your other debts.

A home equity loan comes with a much lower rate of interest and other associated fees when compared to those associated with a credit card loan or any other personal loan. Also adding to the popularity quotient is the facility of a tax deduction on the interest accumulated on the first $100,000 borrowed in the form of a home equity loan.

2. How much can one borrow using a home equity loan?
   In general circumstances one can borrow up to a value which comes out to be equivalent to about 85% of the amount of your home equity. In some rare circumstances you might even find lenders willing to finance you to up to 100% of your home equity.
3. What is the difference between a home equity loan and a home equity line of credit (HELOC)?Regardless of the fact that both home equity loans and home equity line of credit are second mortgages there are some major fundamental differences between the two. In the case of a home equity loan the loaned amount is made available to you in the form of a lump sum amount for your disposal. The rate of interest being charged on this amount is fixed throughout the loan tenure and is repaid back in the form of pre decided monthly installments. On the other hand in the case of a HELOC the working is similar to that of a credit card. Here the lender provides you with the facility where he sets a maximum level to the amount you can withdraw. You therefore have the advantage of withdrawing any amount within the set limits at any point of time. The monthly payments are calculated depending upon the amount you withdrew that month and the current interest rate present in the market.
4. Is a home equity loan or a HELOC a better suiting option than home refinancing?This decision is purely a matter of personal choice. If you feel that your current mortgage is proving to be expensive for you then you can go forward with its refinancing. It might land you up with lower interest rates which would effectively translate into cheaper installments. Also the possibility of getting an interest free refinancing makes it all the more appealing. On the other hand if your present mortgage rates appears fine to you then it makes sense to make use of a home equity loan or a HELOC.
5. What does a loan to value ratio signify?This figure finds its place in the terms and conditions when you seek to take a second mortgage on your home. Effectively it is nothing but the difference your current mortgage amount and your home’s newly appraised value.