Home Equity Loan

Home Equity Loan , as it popularly known as, is a loan type where the home of the borrower is used as collateral. The primary reason for which such a loan taken is a sudden expense or a sudden financial need that is largely unforeseen.

The reasons might be as varied as college education, medical bills not covered by insurance, home renovation, vacation, debt consolidation, etc. 
In home equity loan cases, the borrower's actual home equity is reduced as it is made a lien against his house. Lien, in legal terms, is a form of security interest, granted over an item or property, to shelter repayment of debt.

Home Equity Loan is generally termed as second position lien, though there are occasions when it is placed among first or third place liens. One of the primary pre-condition for home equity loans is that the credit history of the borrower must be good or excellent. Although, if the borrower gets a good deal out of the clutter of lenders around him, then his credit history might be ignored. 

Realistic loan-to-value and mutual loan-to-value ratios are two important combinations the lender looks upon from the borrower. Closed end and open end are the two flavors that home equity loans come in. Both, however, are referred to as mortgages of second type liens. Traditional mortgage is secured against property, so is Home Equity Loan. 

The borrower gets a number of benefits from securing home equity loans and the most important among them is tax deduction facilities provided in some States of United States of America. Some clauses are there to get the exemption, though. 

Closed end Home Equity Loan is the type where the borrower gets a large amount of money in time of finalizing or closing a real estate deal. After closing, he cannot borrow further. The amount of money that can be borrowed depends on a number of elements. Income, history of credit, and appraisal value of the collateral kept are the three elements that can be consider vital for the borrower. 

It is sometimes possible to borrow 100% of the evaluation value of the house, minus any liens, but for over-equity home equity loans, the lenders are more flexible. The percentage ratio might as well go over 100% to 125%. In America, there are States like Texas, which do not allow more than 80% borrowing on home equity. 

Texas, where state law governs the area, so facilities that are accessible in other parts of the country are often not available here. In fact, for many years Texas did not even allow the home equity loans to be availed as part of state policy.

Open-end home equity loan is the type where the credit loan is changeable depending on the wish of the borrower. In this type of loan the borrower has the permission to choose the time and the number of times that he can borrow the loan against home equity. It is also known as HELOC or Home Equity Line of Credit. There are certain criterions, based on which the lender sets up a limit on the initial loan taken. The credits are available for a fixed amount of time, the maximum period for which can reach a span of 30 years.