Types of Home Equity Financing

Most home equity loans have shorter terms than standard first mortgage loans. The typical home equity loans commonly have terms of five to 20 years. As mentioned earlier, their interest rates tend to be 1.00 to 3.00 percentage points higher than comparable first mortgage loans.

First mortgage refinances are also often referred to as home equity loan. However, the real estate and mortgage industry tend to differentiate between the first mortgage refinances and second mortgage equity loans.

During the 1990s, the banking and mortgage industry developed two alternative types of home equity financing that have become increasingly popular:

  • 125% LTV second mortgages
  • Home equity line of credit (HELOC)

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