What Is A Home Equity Loan?
A home equity loan—also known as an equity loan, home equity installment loan, or second mortgage—is a type of consumer debt. Home equity loans allow homeowners to borrow against the equity in their homes. The loan amount is based on the difference between the home’s current market value and the homeowner’s mortgage principal balance due. Home equity loans tend to have a fixed-rate, while the typical alternative, home equity lines of credit (HELOCs), generally have variable rates.
A home equity loan can be a good way to convert the equity you’ve built up in your home into cash, especially if you invest that cash in home renovations that increase the value of your home. However, always remember that you’re putting your home on the line—if real estate values decrease, you could end up owing more than your home is worth.
Home Equity Loans Vs. HELOCs
Home equity loans provide a single, lump-sum payment to the borrower, which is repaid over a set period of time at an agreed-upon fixed interest rate. FNBT offers Home Equity Loan terms of 5 or 10 years with a fixed interest rate and established monthly payment.* (put in the disclosure section) *The loan must be repaid in full if the home is sold.
A HELOC is a revolving line of credit, much like a credit card, that you can draw on as needed, pay back, and then draw on again, for a term determined by the lender. HELOCs also typically have a variable interest rate. The draw period for a FNBT HELOC is 10 years with interest-only payments required during the term, so principal repayment is at the discretion of the borrower. Once the term ends, the principal balance is due. If you have an outstanding balance after the 10-year period, the principal is due and you can re-apply for a new home equity loan or line of credit.
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