Equity Home Loan Mortgage

Equity is the monetary value that accrues while a person is paying off their home mortgage, or anything else of value. This equity value can be tapped when cash is needed for home improvements, consolidation of bills, or for many other reasons. The determination to obtain an equity home loan mortgage should be based upon whether or not it will be beneficial to the homeowner, and not just because it is a way to get some cash. Like all financial moves, the ideal is to provide a benefit or a profit to the person initiating the action.

An equity home loan mortgage is a second mortgage on a property. It may also be used to refinance the entire first mortgage, at which point it would become the primary lien on that property. If it is a second mortgage, it has subsequent priority to a first mortgage. If there is any default on payments, any recovery money will be applied to the first mortgage and then to other prioritized liens. This puts the lender at risk, so they charge a higher interest rate and fees for that second equity mortgage.

The process of applying for an equity loan second mortgage is very similar to applying for a first mortgage. Borrowers need to show stable employment history, a good to excellent credit record, pay an application fee and meet other qualifications. There may be a down payment required, or the loan will be subject to PMI (private mortgage insurance) costs if the down payment is less than 20% of the loan.

Home equity mortgage loans are an interesting financial tool. There are circumstances where having both a first and second mortgage on a property can benefit the homeowner. Getting the use of some of the accrued equity resting in a property can allow the owner to make an important investment that they may otherwise not be able to complete. The loan can be used to improve the home, making it more valuable and thus building even more equity value into that property.

Some people want the use of their mortgage loan equity to make a large purchase in cash, such as a second home or a vehicle. They may want to consolidate old debt at high interest under one of today’s lower interest loan offerings. The biggest concern with handling an equity loan second mortgage is paying both mortgages on time and completely, until the end of their terms. If a person cannot pay one or both of their mortgages, the property may be at risk of foreclosure by lenders.

Borrowing against value in property always means paying the piper or the price of not paying the piper. Banks and lenders are willing to work with their customers, but they want the return of their money in full, with interest. If the property is seized and sold to pay off liens and mortgages, most of those involved in the deal will lose. Using financial tools like an equity home loan mortgage can help the homeowner and the lender if done correctly.