Mortgage Definitions other services available
| Home Loans |
WHAT IS A MORTGAGE?
A legal agreement that uses property as collateral
to secure payment of a debt. The legal agreement
means that when a mortgage is on a house,
the lender can take possession of the house
if the borrower stops making payments.
There are basically three types of mortgages
that you can select among when
purchasing
or refinancing a home:
Fixed Rate Mortgages
Adjustable Rate Mortgages
Balloon Mortgages
Another type of mortgage - a "home equity loan" - is typically
used by homeowners to borrow
some of the
equity they have built up in
their homes.
They usually involve a "floating"
or adjustable rate of interest
and are amortized
over a period of years.
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Home Equity
Home Equity Loans
Home Equity Line of Credit
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The current market value of a home minus
the outstanding mortgage balance. Home equity
is essentially the amount of ownership that
has been built up by the holder of the mortgage
through payments and appreciation. Typically,
residential property is bought through a
mortgage, which is then paid off over a number
of years, often 15 or 30. After the mortgage
has been fully repaid, the property then
belongs to the mortgagor, namely the buyer.
In the interim, however, the buyer simply
builds up equity in the home. This is what
a home equity loan borrows against. Although
that equity cannot be sold, banks will lend
money against it. Home equity loans offer
significant tax savings due to the fact that
the interest paid on a home equity loan is
tax-deductible.
Home equity loans are often used
to consolidate
other debt with high interest
rates (like
credit card debt), to finance
large expenses
(such as college or a wedding),
or to purchase
other costly items. There are
two main types
of home equity loans. The first
type is the
traditional home equity loan,
also known
as the second mortgage, which
lends out a
lump sum of money that must be
repaid over
a fixed period. The second type
is the home
equity line of credit, which
provides the
borrower with a checkbook or
a credit card
that is used to borrow funds
against the
home equity. Funds borrowed from
a traditional
home equity loan start accruing
interest
immediately after the lump sum
is disbursed;
funds borrowed from a home equity
line of
credit do not begin accruing
interest until
a purchase is made against the
equity.
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