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Home Equity Loans

You finally have a house to call your own. Nothing feels better then having our own home, your own place, something you truly own. Your house can provide you with shelter, memories, privacy and a host of other things. But did you know that your house can actually help you pay your bills? If you are in debt and need a source of income a home equity loan is a great way to make payments that your paycheck alone cannot. A home equity turns your house into a line of credit based on the value of the house.

It may seem like a risky proposition to you, taking out what equates to another mortgage on your house to help you pay off your debts. A home equity loan is backed by your house but it comes with a reasonable interest rate that makes it very popular. You can only take out a loan based on how much equity you have. What this means is the amount of the loan you can take out is equal to how much of your mortgage you have paid back. If you bought your house for $250,000 and made a $30,000 down payment and paid off $15,000 on your mortgage so far you would have $45,000 in equity. However you house could get reappraised and increase in value, if so you would have more equity. You can borrow up to 100% of your equity, although some companies may only go up to 80% or 90%.

There are two types of home equity loans you can get: A closed end home equity loan and a home equity line of credit.

Closed End Home Equity Loan
A closed end home equity loan allows you to receive one payment for your entire loan. If you borrow $60,000 you get it all upfront and are free to do whatever you want with it. These loans can then be amortized to up to 15 years and usually have fixed interest rates. Once you borrow the initial sum you can not borrow anymore.

Home Equity Line of Credit (HELOC)
A home equity line of credit is an opened end home equity loan. When you apply for the loan you will set a limit for your line of credit, which can be up to 100% of the total equity you have. You can borrow against it as often as you want as long as your overall total does not exceed your limit. HELOCs can last up to 30 years and come with a variable interest rate.