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What's New about the Home Equity Loans

By Charles Hopkins Published 12/14/2006 | Finance
 

You are expected to shoulder various types of expenditure at various phases of your life. From time to time you may find it too difficult to handle the financial pressure. But the expenditures have to be met with; they can not be kept at hold. Well, this is the high time when you can seek help from your greatest asset---your home. The latest financial trends show an increasing trust of the people on the home equity loans. In fact home equity loans and lines of credit have emerged in a great way in the recent years to provide financial support in the time of emergencies---both personal and business related.

According to the current trends in home equity loans, more and more people are leaning towards their homes at the times of needs to cut a chunk of money to meet with the essential expenditures. The home equity loans are being taken for the reasons as varied as home repair or paying for their childrens college tuition fees. In addition to that another big reason for taking home equity loans is debt consolidation and getting rid of the credit card debts.

In the present scenario, the home equity loans can be obtained with quite low interest rates, they also come with tax deductible features.  The huge popularity of this loan can be attributed to other factors like growing    number of easily accessible financial institutions, fairly reasonable fees and other acceptable terms and conditions.

Home equity loan enables you to secure huge amount of credit by using the   home-equity as collateral. This loan product may take two major forms: a home equity loan (HEL) or home equity line of credit (HELOC). Both of them come with their respective advantages. But to decide what kind of loan will be suitable for your situation you have to consider several variables. But before that you have to know how they differ from each other.

A home-equity loan is more in the nature of a second mortgage. This loan allows you to obtain a lump-sum of money. This along with the interest has to be paid back to the financial institution in fixed monthly installments over a fixed period of time. The time generally spans over 10 years-to-15 years. The latest trend in HEL involves a fixed locked-in interest rate that is agreed upon right at the time when you secure the loan.

On the other hand a home equity line of credit is more in the nature of a credit card. Just like a credit card, the HELOC entitles you to a certain credit limit. You draw money from it and   pay it back along with the interest. The HELOC typically comes either with a checkbook or a credit card which you have to use for obtaining money up to your credit limit. According to the present trends, this credit limit generally does not exceed 50,000. Every time you draw money from the HELOC credit card, you are expected to make a monthly minimum payment on your outstanding balance. But the rest can be paid back as and when you think it suitable.

The interest rate that the HELOC typically follows corresponds to the prime rate. This rate is similar to the rates offered by the banks to their customers. In an average the HELOC interest rates go 1 percent more than the prime. But some HELOC rates can be set at prime too.

So these were the recent tends in the home equity loans. Now it is up to you what type of home equity loan you will opt for. Always consider these factors such as your long term financial goals, the payment schedule, your spending habits and your risk tolerance before reaching to the final decision.