What Exactly Are Low Cost Home Equity Loans?

Low cost home equity loans are a type of loan through which the equity in a borrower's home is used as collateral. These loans are different from a full mortgage in that they do not attach the full value of the home, but rather, the amount of money the customer has already paid toward the home purchase. These types of loans can be beneficial in emergency situations, such as for the payment of medical bills or major home repairs. The home equity loan places a lien against the house for the amount borrowed, in turn reducing the home equity.

Low cost home equity loans are considered as "second position" liens, or second mortgages. In other words, the loan creates a second trust deed in the property. If the home were to go into foreclosure, the initial loan issuer would have first claim to the property, after which the equity loan issuer would be granted their rights. The loans are intended for a much shorter period of time than the traditional mortgage.

Although most equity loans require a good credit history, some companies will consider outside factors such as job history, circumstantial evidence supporting the reason for poor credit accounts, time at the residence, how reliably the regular household bills are paid, and so forth. After all, most consumers will hit a financial snag at some time or another, typically for reasons beyond their control such as lost wages, auto accidents, natural disasters, and so forth. Companies who cater to the less-than-perfect credit market understand these circumstances, unlike major loan companies who consider credit worthiness based upon the credit report exclusively.

Low cost home equity loans are much different than home equity lines of credit, and it is important for the consumer to understand the differences between the two. Home equity loans are issued in one time sums, typically with a repayment schedule and a certain fixed interest rate. On the other hand, home equity lines of credit are essentially creating a revolving credit line with adjustable interest rates.

When choosing a financing company for a low cost home equity loan, there are a few factors which must be carefully considered. Choosing a company based on reputation, interest and other related financing rates, terms of the loan are all wise decisions. Likewise, by working with a local agent you will most likely get a better loan plan than if the company has no personal interest in your area