Home Equity Loans
These are home loans primarily used for two purposes: home improvements and to cash out some of your equity. These loans are 2nd lien loans with a higher rate than first liens. The maximum term is 15 years and can be amortized as a 15 year loan or as a thirty year amortization payable in 15 years. The second choice has a balloon payment at the end of 15 years. This loan comes as a fixed or ARM loan and can have stated income features for those with high FICO scores at a higher interest rate. FHA also has a home improvement loan program under Title I that has a 15 year term. The FHA loan is strictly for home improvements.
Advantages:
- Low closing cost.
- Easy to obtain
- Fixed rate or ARM loans available
Disadvantages:
- Higher interest rate than a first lien loan.
- Not assumable
When Should I use this loan?
- If you need a small home improvement loan generally under $25,000.
- If you need under $25,000 cash out of your home.
You will have more closing cost for a first lien cash out refinance, but if you are trying to get more than $25,000 or if the first interest rate is now lower than what you currently have, this might not be the right loan for you.
