What is an Equity Loan?

Equity loan is  a loan that uses the borrower’s equity in real property as collateral. The loan may be for a variety of purposes. Also known as a second or junior mortgage loan.Equity loans are made available to homeowners who have a low loan balance to value ratio in their home and desire to utilize this ratio to receive cash.  It is a  loan secured by a primary residence or second home to the extent of the excess of fair market value over the debt incurred in the purchase.This funding program is tax free because the money derived from equity is not considered income, as the homeowner has received that amount by paying down the mortgage. An equity loan can be dispersed in one lump sum or used as a line of credit up to a predetermined limit based on the amount in the home. Typically there are no strict repayment schedules to adhere to with this form of assistance.

The money can be due (with interest) when the home is sold, or at any time the homeowner is able to pay it off. Equity loans are relatively easy to qualify for if there is a sufficient amount in the home to cover the amount of money requested. The money can be dispersed quickly (within 2 weeks) as long as all documentation is provided to the lender in a timely manner. The average equity loan will carry a low interest rate, which would explain why they are so popular among homeowners. They can also be used for whatever the borrower wants, unlike a mortgage, automobile, or boat loan.

Common purchases associated with equity loans are children’s education, home improvements and vacations. Recently educational student loans have been a better route to go in paying for educational tuition and living because of the national interest rates being so low, however, in the past an equity loan was the most popular way of funding a child’s college education. There are programs available for those with bad or no credit as well. These may carry a higher interest rate, but still offer the borrower tremendous leeway in spending ability that most other larger funding programs don’t offer.