Home equity loans are loans against the equity in a homeowner’s property. There are two financing options for home equity loans:
Fixed-rate home equity loans have a fixed rate and a fixed term, which is usually a 15-year maximum loan term. All proceeds are received at the closing and the loan is fully amortized.
Also referred to as HELOC, these loans are a revolving account that’s secured by the equity in the property. Funds are only drawn on an as-needed basis, up to the maximum line of credit. The interest rate on the loan will vary when the index varies because the loan being tied to the prime market index. The loan will fully amortize when the payment period has expired.
A less popular option for home equity loans, the Option ARM includes a feature that allows the borrower to make payments that don’t cover the loan interest. Also known as negative amortization or deferred interest, the mortgage balance increases due to the reduced monthly payment. Borrowers can make payments through; negative amortization; interest-only; fully-amortized 30-year payment, or; fully-amortized 15-year payment.
When considering qualifying for the FHA reverse mortgage program, you must meet the following requirements: