December 07, 2001
By: Bev Dodd
Equity loan: Low rates, great service
Equity loans can be used for just about anything from replacing your old car to home renovations. Make sure you know what kind of equity loan you are getting and what the payments cover. We'll discuss this more below.
An equity loan is basically a 2nd mortgage on your home, based on the equity you have in it. The length of the loan is usually 7 to 10 years, at around 8% interest. Some loans may be interest only, meaning your payment only covers the interest, so at the end of the term there is a balloon payment of the original loan amount (you will have to get a new loan to replace it). Others amortize the loan so that your payments are enough to pay it all off by the end of the payment period.
If you have decided that you definitely want to use the equity in your home to pay for home improvements, your child's education, pay off other bills, then you really just need to decide whether you want to refinance, get an equity loan or home equity line of credit.
Equity loans can be used for practically any reason, from remodeling projects and purchasing a new auto or appliance to financing tuition or consolidating higher interest debt. Because your home is being used as collateral, however, you should carefully consider how you will use your equity loan.
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