Home equity loan programs work essentially the same as a second mortgage. Equity cash out can be accessed without having to refinance the existing first mortgage, and the cash can be used for debt consolidation, auto loans, home improvement, or personal expenses.
The amount of a loan or a credit line is determined by the difference between the appraised value and the current first mortgage, subject to the maximum loan to value allowed by the lender. Closing costs and fees vary by lender, with some offering zero point home equity loans.
With a fixed rate equity loan, the borrower receives a one-time payment at the closing of the process. If you have an existing home equity loan, 2nd mortgage, or a home equity credit line, it has to be paid off with the proceeds of the new loan, so be sure to borrow a sufficient amount.
If a home equity loan is secured by a lien on your primary residence, the interest payments may be deductible from your taxes, within the allowed limitations, check with a tax advisor. After the loan documents are signed, you have a 3 day right to cancel if you change your mind.
Equity loans are typically available in 5 year, 10 year, 15 year or 20 year terms. Home equity loans with longer terms can provide a lower payment, but also means more interest is paid over the life of the loan.
For example, the monthly payment on $100,000 for 30 years may be about $200 less than a 15 year loan, however, the interest paid could be more than double for the full 30 year term.