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What Is A Closed End Home Equity Loan?

By Ann White

What is a closed end home equity loan? How do they determine the amount available on a home equity loan?

A closed end home equity loan is a type of second mortgage that you receive in one lump sum payment. With a closed end loan you apply for an equity loan and after all the processing fees are taken care of you will receive the left over money. This can be very useful if you need to make a large repair, pay off unsecured debt or cover medical bills.

How do they determine the amount available on a home equity loan?

A home equity loan is a second mortgage on the home. The lender determines the current value of the home subtracts the amount owed on the current mortgage and comes up with a final figure. This figure represents the amount of equity that is available as collateral for the second mortgage. Most lenders will only lend on 80-85% of the available equity in the home. So, as an example, if you have 100k available in equity you would be able to get an equity loan for 80-85 thousand dollars. You do not have to borrow the full amount that is available.

What is an open end home equity loan?

An open end home equity loan is most often referred to as a home equity line of credit. This form of loan is still a second mortgage, but it is a revolving line of credit. Credit availability and interest rates will depend on when you borrow money against the credit line. Closed end home equity loans have a fixed interest rate and a standard monthly payment. Fluctuations in the market can make a large difference in the amount of money that can be available for this type of second mortgage.

Related posts:

1. What Is The Difference Between A Home Equity Loan And A Line Of Credit?
2. Should I Get A Home Equity Loan Or Line Of Credit?
3. Are Mortgage Rates Different On A Home Equity Loan?
4. What Is The Equity In My Home And How Do I Get It?
5. How Can I Calculate How Much I Can Take Out On A Home Equity Loan?