Equity mortgage is a kind of mortgage loan which offers you chances to borrow against a collateral security already owned outright. Today, equity mortgage loan is really common and always considered as a fantastic way for people to get some free cash. You can get an equity mortgage loan from a finance company, big bank or other lending institutions.

If you choose to borrow money by leveraging the equity in your house, this will be a home equity mortgage loan, also known as second mortgage. Normally, home equity mortgage loans are offered against residential houses, apartments, commercial complexes or industrial properties that are owned by the receiver of the loan.

As a homeowner, home equity mortgage loans are a good alternative to you as they often fund quickly and allow you to pay a relatively low interest rate on the loan. However, before applying for a home equity loan, you will need to figure out which kind of home equity loan best suits you.

Types of Home Equity Mortgage Loan

In general, there are two types of home equity mortgage loans (second mortgage) for you to choose from: the standard home equity loan which is always referred to as HEL and the home equity line of credit which is abbreviated to HELOC.

HEL: When you get a home equity loan, the lender will give you a lump sum of money that is expected to be paid back over a period of time. Usually, it’s about 10 to 15 years. Immediately after the money is given out, a fixed interest rate will be attached to the payment. HEL will be an ideal choice when you have a clear awareness of how much money you need and what you are going to spend the money on.

Advantages:
1. One of the greatest advantages of a HEL is that you can build the equity in your house every month, as long as you pay back the loan on time;
2. Basically, the interest rate will be fixed over the life of mortgage loan;
3. The agreed interest rate is tax deductible.

Disadvantages:
1. Payments are fairly high as you will need to pay both the interest and the principal;
2. Home equity loan always comes with closing costs.

HELOC: HELOC means that you can take out money against the value of your house. The bank (lender) will give you a credit card or write a check for more money than you actually have in your account. You can use the credit card or check to make purchases and then pay back the money. Your monthly payments will be based on the amount of money you borrow as well as the current interest rate. With this type of home equity mortgage loan, you do not need to repay a dime if you never take out any money.

Advantages:
1. HELOC let you only use the amount of money you really need;
2. The interest will not begin to build before you actually make a purchase;
3. No closing costs will occur;
4. The interest rate is tax deductible.

Disadvantages:
1. The interest rate varies, so it might be really high sometimes;
2. HELOC has a set term and you will be required to repay the money you borrow from the bank or lending institutions in full as the end of the term is reached.