Advantages Of Loan Equity
Finance Loan

Advantages Of Loan Equity

Published at 02/09/2012 22:58:03


Advantages Of Loan Equity

Equity loans are mortgage loans. The borrower receives a certain amount of cash in these loans based on their mortgage value and has to pay a component of the interest each month. The interest is calculated on a daily basis and added to the outstanding loan each month. The borrower is always allowed to pay any amount of the loan principle at ay time hence reducing the amount of interest from the day the interest is paid. In other words the more prompt you are in paying off your loans the lesser you will be required to pay in interest.


Advantages Of Loan Equity

Loan equity through homes appeared for the first time in the early 1980s. But the term equity loan has been around since the Great Depression. When the federal banks began to allow second mortgages along with loan that pursued the interest-only theorem in the late 1970s mainstream banks began a head-on start with these loans. However it was not until the late 1990s when equity loans received publicity. Advertisement campaign by commercial banks like Citibank showed the public the many positives of mortgaging their homes to financial institutions at lower interest rates for the second time and this caused a rapid boon in the number of people who took loans with such equity. In fact the multi-billion dollar worth advertisements have been so beneficial that the amount of such loan taken has increased from $1 billion to $1 trillion from early 1990s to the mid-2000s.


Equity loan comes in two forms:

Fixed-rate loan

These provide a single sum payment to the borrower which has to be repaid over an agreed period of time settled between the borrower and the lender at a definite interest rate. The payment and the interest rate do not vary during their lifetime.

Home-equity lines of credit(HELOC)

This is a variable-rate loan which works like a credit card and sometimes even allows the borrower to possess one. Lenders at first analyze and approve the borrower for a certain spending limit below which the borrower can withdraw any amount of money via a credit card or a special check. Based on the amount borrowed and the current interest rate the monthly payment varies but like the fixed-rate loans they have an appointed time. When the end of this term is reached the outstanding loan must be repaid in full.

Tips and Comments

The advantages of equity loans include a much lower interest rate compared to normal loans such as credit card debt. The main reason behind this is that equity loans tend to be collateral while other loans are insecure. In addition, the borrowers are allowed easy credit to buy things they might not otherwise have been able to afford. And it is evident that the public is not taking these loans based on the whimsical ads. For responsible borrowers this is just the perfect tool if a steady source of income is always available which will allow the loans to be repaid easily. While the fixed-rate loans are able to cover large expenses of a single purchase the HELOC is more convenient for incurring short-term expenses that occur numerous times.


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