What Does A Home Equity Loan Consist Of ?

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What Does A Home Equity Loan Consist Of ?


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If you want take a home equity loan, you must be wondering what does a home equity loan consist of. Basically, the loan consists of the equity on the house, which can be used as collateral to get the loan.

This type of loan is considered as a secured loan, and therefore, offers a lower rate of interest compared to an unsecured loan.There are primarily two types of home equity loan. These are home equity line of credit and home equity loan. The line of credit that you get is a revolving one and is usually to the tune of the equity owned by the homeowner. The homeowner can avail the line of equity as and when required, but will have to make monthly payments on what is taken. This home equity loan is quite similar to using a credit card.

In home equity loan, the loan amount is given based on the equity of the house, which is also used as collateral for the loan. Here the homeowner gets a lump sum amount, and he has to repay the amount by making monthly payments. Once the entire loan amount is paid, the matter ends there. 

Therefore, it can be said that a home equity loan consists of the principal amount and the interest charged on that amount. When you make monthly payments towards the loan, a part of the money goes in repaying the principal amount and the other part goes towards the interest rate payment.

Usually home equity loans are not primary loans taken by homeowners. Also, as you are using the equity as collateral, you are not required to have a private mortgage insurance.

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What Does A Home Equity Loan Consist Of ?