A home equity loan is similar to a mortgage, thus the term second mortgage. The amount a homeowner can borrow will be determined in part by a combined loan-to-value (CLTV) ratio of 80% to 90% of the home's appraised value. Of course, the loan amount, get pre-approved for a home loan and interest rate are also determined by the borrower's credit score and payment history.
Traditional home equity loans, like conventional mortgages, have a defined payback duration. The borrower makes consistent, set payments that cover both principle and interest. If the get pre-approved for a home loan is not paid off, the residence may be sold to settle the outstanding debt, as with any mortgage.
A home equity loan can be a great way to convert your home's equity into cash, especially if you plan to use the money for upgrades that will increase the value of your home. However, keep in mind that you are putting your property at risk—if real estate values fall, you may find up paying more than your home is worth.
If you decide to relocate, you may lose money on the sale of your house or be unable to do so. And, if you're taking out the loan to pay off credit card debt, avoid the urge to rack up new charges. Consider all of your choices before taking action that might jeopardize your home.