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Last updated on November 29th, 2021 at 01:34 pm
Due to the Coronavirus, home equity loans may be an option for getting emergency cash. Home equity loans allow homeowners to borrow against the equity in their residence.
As of Aug 31, 2020, the average Home Equity Loan Rate is 5.29%.
Home equity loan amounts are based on the difference between your home’s current market value and the mortgage balance due. Home equity loans are of two types –
- Fixed-rate loans provide a single lump-sum payment to the borrower, which is repaid over 5 to 15 years at an agreed-upon interest rate. The payment and interest rate remain the same over the lifetime of the loan. The loan must be repaid in full if the home on which it is based is sold.
- Home equity lines of credit (HELOCs) is a revolving line of credit, much like a credit card, that you can draw on as and when needed, payback, and then draw on again, for a term determined by the lender. The draw period, which could be 5 to 10 years, is followed by a repayment period when draws are no longer allowed 10 to 20 years. HELOCs typically have a variable interest rate. There is a possibility that some lenders can convert it to a fixed rate for the repayment method.
Cash-Out Refinance – is a loan that refinances your first mortgage into a larger mortgage, and allows you to make the difference in cash.
Assuming you have an adequate amount of equity in your home, a cash-out refinance loan enables you to:
- Pay off your existing mortgage.
- Negotiate a new term, rate, and repayment schedule for your consolidated loan amount.
- Obtain a new mortgage in the amount of your existing mortgage, plus the amount you want to borrow.
- Receive the borrowed funds in a lump sum.
When you plan to use a cash-out refinance loan to tap your home equity, you enter into a whole new loan agreement, which means the terms, rate, and repayment plan for your new mortgage will be different.
Generally, cash-out refinance loans offer up to 30 years for repayment, and you can choose between fixed interest rate or adjustable interest rate.
