Getting a Quick Term Home Equity Loan

What is Equity?

If you already own your home, you've probably been building value in it every month that you make a payment to your mortgage. This value is known as equity and it is simply calculated as; HOME VALUE minus MORTAGE AMOUNT. For example, if you have a home that you bought for $100,000 several years ago and have been making payments on so that now you only have a $90,000 mortgage your home can be said to have $10,000 in equity. Better still if the home values in your area have gone up since you purchased the home, your equity level may be higher still.

Equity Loans Take Advantage of Value

Most lenders out there will work with a home owner in need to offer them a loan based on the value of the equity in the home. After an appraisal is made, a level is established and a loan is offered based on the equity - which is never 100% of the equity of a home. If you have $20,000 equity in your home you will not be offered a loan for $20,000, but a certain percentage less based on the lender's criteria and the risk they feel making the loan to you poses.

Types of Quick Term Home Equity Loans

Borrowing against the equity in your home usually yields funds in one of two ways depending on the type of loan you receive. Homeowners can opt for the home equity loan or the home equity line of credit. Both have their advantages and disadvantages as discussed here:

• Home Equity Loan: Home equity loans come in the form of a traditional, lump sum payment, leaving you with a second mortgage and plenty of money in your pocket to do with as you please including remodeling your home, paying off other debts, or taking that vacation you always wanted. Like a regular mortgage, home equity loans can be quick term loans based on your preference and how soon you wish to eliminate this new debt. The advantage to the home equity loan is that it usually comes at a flat interest rate, so you can know exactly how much you will need every month to make that extra payment. Their disadvantage compared the home equity line of credit is that it is a one-time loan and once you receive it and spend it, it's gone.
• Home Equity Line of Credit: Lines of credit act like a credit card in that it is a revolving account based on your home's equity. When you have used it, for example to buy a $1,000 ring, and then made payments on that, the money will become available to you use again. This is the primary advantage of a home equity line of credit or HELOC. Not designed to be a quick term loan, the home equity line of credit is designed to be used and reused on a regular basis or the account may be closed by the lender and no longer available to you.