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Last Updated: Feb 18th, 2008 - 14:39:01 |
What Exactly is a Homeowner’s Loan?
The term “homeowner’s loan” has created a lot of buzz in the past few years, mainly because it is not a formal tag for any kind of loan. Rather, it is a general label for many types of credit extended to a homeowner whenever he or she would use his or her own house as collateral to secure the grant of a loan. There are quite a number of homeowner loans that you could avail of, so it is not correct to say that you simply want to apply for a homeowner’s loan. Determining which type of homeowner’s loan is most suitable for you is the first step that should be taken with this general kind of loan agreement.
Home Mortgage Loans
The most popular kind of homeowner’s loan is a mortgage loan. This isn’t really a homeowner’s loan, technically speaking, as your full ownership of the house would be suspended until such time that you fully pay off the mortgage. You only have inchoate rights to the housed pending full satisfaction of the mortgage loan. However, because of common usage, mortgage loans have been included under the general umbrella of homeowner’s loan.
A mortgage loan is a great alternative to renting. The latter does not bestow any equity over the house. At the end of the lease agreement, the rent you have paid would be for naught, whereas with a mortgage loan, you would be able to use the house under a mortgage loan even during the period when you are striving to pay off the same.
The way it goes is that you would have to pay the down payment for the house you are considering. Make sure that you pay at least 20% of the total amount. This would assure lower taxes and levies for you. The balance would then be paid by the creditor. You would have to pay the creditor what is due to him in stated installments, plus stipulated interests. As security, the creditor would get to keep the deed to the house. This deed would be passed on to you upon full satisfaction of the mortgage loan.
And as we’ve mentioned earlier, you would get to use the house even during the pendency of the mortgage. This is indeed a better alternative to renting as you would get to gradually acquire equities to the house you have decided to buy through such a route.
Home Equity Line Of Credit
And speaking of equities, we have another kind of homeowner’s loan based on the same. It is called a home equity line of credit. Basically, a home equity line of credit is a credit line that uses your equity to a house as collateral. Equity simply refers to the rights to the house which you own. A house under a mortgage loan, for example, which you have paid 80% of would give you 80% equity over the same home. This 80% equity would be used as security for a home equity line of credit.
As is commonly practiced, once you have attained substantial equity over a house under a mortgage loan agreement, you could apply for a home equity line of credit to pay off the mortgage. This would extend the maturity date of the original loan as it would be replaced with the new one, and if the new loan imposes a lower interest rate, it would be a better alternative for you to pursue.
Basic Homeowner’s Loan
There is, of course, the basic kind of homeowner’s loan, that is, a loan that is granted with your house as collateral. This presupposes the fact that you are the full owner of the house. It should be under your name. Whatever purpose you’re planning for the loan, be it to pay for some existing obligations, or to establish a startup business, you would be able to avail of some credit by using your house as collateral.
It goes without saying that with any kind of homeowner’s loan you want to avail of, you would need a good credit score to position yourself for favorable benefits like lower interests rates and other applicable fees. Also, you should be fully committed to comply with the terms of the loan. Loans are always a double-edged sword. They can be used to make life easier or harder for you. It all depends on how you use them.
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