Though we all know a bit about equity loans, not all is known about it. Equity loan is basically another term used for mortgage loan. In such cases, one ends up receiving cash against a property owned by the borrower. These loans are also known as secured loan.
Here are a few factors that need to be kept in mind while opting for an equity loan.
Firstly, the rate of interest applicable in case of an equity loan is generally lower than other forms of loan. This is mainly because the loan is taken against an asset that has an appreciating value. Hence, it is a cheaper form of loan as compared to others available in the market.
Secondly, in case of an equity loan on can avail borrowing up to 80% to 85% of the present market value of the property or real asset pledged. The exact percentage differs from bank to bank and financial institution to financial institution.
Thirdly, these equity loans come with easy repayment options. Generally the banks ask you to repay only the interest on a monthly basis. The principal amount can be repaid as and when the borrower wants. On repayment of the entire principal and outstanding interest the real asset property deed is returned to the borrower. Till the time the principal amount borrowed is outstanding, the borrower needs to pay the interest on a monthly basis.
Many people opt for equity loan and are known to benefit from them. There are basically two types of home equity loan one is fixed home equity loan and the other is fluctuating home equity loan. Incase, of the fixed home equity loan a fixed amount is paid to the borrower against real asset. The borrower in turn pays a fixed amount of interest that remains constant till the time the principal is not repaid in full. In case of fluctuating rate of home equity loan the rate of interest changes or varies as per market.
Another famous form of home equity loan is known as home equity line of credit. In such cases, the borrowers are issued prelimit set credit cards or cheques that they can encash any time. In such cases the borrower enjoys the freedom of withdrawing the cash as and when required instead of all together. This helps him to save in terms of interest and lowers his monthly installment.