A home equity loan allows you to take advantage of the equity you have in your home. This type of loan is also called a second mortgage, because usually it is an additional loan on top of your first mortgage. A home equity loan lets you take out the equity in your home in cash form, to use for any purpose you like.
Unlike credit cards, consumer loans and auto loans, the interest you pay on a home equity loan may be tax deductible. Check with your tax advisor.
If you’d like to take cash out, but don’t want a second mortgage, you may be eligible for a VA cash out loan. This loan pays off your first mortgage with a new, bigger first mortgage, and you take the proceeds as cash at closing. Get a free quote to see if you are eligible. You can use the money from a cash out loan for debt consolidation, home improvement, college education, investments and more. This quote form takes about one minute to complete.
There are two types of home equity lending, each one suitable for slightly different situations.
Home Equity Loan (HEL): The home equity loan is similar to a first mortgage since it’s a one-time lump sum loan, often with a fixed interest rate. You get all the funds up front, then pay a fixed principal and interest payment each month until fully paid.
Home Equity Line of Credit (HELOC): A HELOC is more like a credit card. You have a maximum limit and borrow as needed. Typically you pay just the interest due for a certain amount of time, say 5 or 10 years, at which time you start paying principal as well. This type of loan is great for home improvement projects when you just need smaller amounts as you go along.
The best place to look for a home equity loan in today’s market at your bank or credit union. Some home equity lenders even let you take out a second mortgage up to 90% or even 100% of your home’s current value.
The Department of VA does not offer a home equity loan program. What they do offer is a cash out refinance mortgage loan. The VA cash out refinance loan allows qualified veterans to open a new mortgage up to 100% of the property’s appraised value and take the proceeds as cash. With today’s low rates, the VA cash out refinance allows many homeowners to take cash out while lowering their interest rate and on occasion, even their monthly payment.