Equity loans were developed to help homeowners up the equity on their home in order to make
profit, or else take out another loan on the home. Home value goes up each year, making the home
worth more everyday that it exists. Home’s equity then is the total worth of the property, minus the
amount the homeowner is paying on the home.
Equity loans then are borrowed cash and the homeowner puts up collateral, which in most cases is
the home. There are advantages of taking out equity loans, especially if the borrower is in debt and
needs cash to pay off his home. The collateral, however, is the garnishing product if the borrower
cannot repay his mortgage. In other words, if the borrower fails to make payment on the equity loan,
then the bank can repossess the home.
Thus, the strategy for homeowners is to borrow cash by taking out an equity loan to lower the
monthly mortgages. Few homeowners may pay $600 per month on their mortgage; and if they find
the right lender, they will take out an equity loan to repay $180 per month. The reduction is great,
but what the homeowner is doing is taking out a 30-year term loan, paying less than $200; thus the
homeowner is literally paying twice for the same home.
Mortgages come in many forms; therefore if you are considering refinancing your home, it pays to
shop around for the lowest rates and best deals. If you are taking out an equity loan, you may want
to inquire about the overpay and underpay loans, where you can get large sums of cash back on your
mortgage. Additionally, you will actually want to print out contracts and compare them side-by-side
to determine what benefits you will gain by selecting one contract over the other.