A home equity loan, as the name itself suggests, also known as HEL, is one in which the borrower uses the equity in his or her home as a collateral against the loan. These type of loans are usually second position liens and can be useful for paying for performing maintenance and major repair work on the house.

• Most of the home equity loans often require a very good credit history in order for the borrower to qualify. There are two basic types of home equity loans; open ended loans and closed ended loans. However both these types of loans are referred to as second mortgages since they are linked to the value of the property.
• In the United States traditional mortgages are a usually non recourse loan which means that these are secured loans which are backed by personal property for which the borrower is not responsible. However, a US home equity loan might be a recourse loan for which the borrower is individually legally responsible. This dissimilarity becomes significant in foreclosure because the borrower might stay personally accountable for a recourse debt on foreclosed assets.
• Home equity loans are basically secured loans in which the creditor takes the possession of pledged assets in case of default on the part of the borrower. Sometimes people use home equity loans to pay off other debts such as credit card debt which has high interest rates and this essentially changes an unsecured debt into a secured one.
• Home equity loans are different from Home Equity Line Of Credit (HELOC) which has an adjustable interest rate. However in home equity loans the rate of interest is fixed and does not change over the term of the loan. This means that a HELOC is a line of revolving credit with an adjustable interest rate whereas a home equity loan is an on one occasion lump-sum loan, often with an unchanging interest rate.
• A home equity loan also comes with various fees. Some of the fees that may be charged for a home equity loan are appraisal fees, originator fees, title fees, stamp duties, arrangement fees, closing fees, early pay-off and other costs are frequently included in loans. Surveyor and conveyor or valuation fees might also apply to loans, several might be waived.
• A common drawback of home equity loans is that fraudsters have found plenty of methods to deceive homeowners out of their most precious asset. Therefore it is important to ensure that you know who you’re doing business with. If you find that the deal is not legitimate or if something is amiss then it is better to look for a different lender since scams and swindling is not uncommon when it comes to home equity loans.

If you have any additional points or facts to add about this topic, please feel free to leave a comment.