Loan Basics: Standard Home Equity Loans

A standard home equity loan is also known as a term loan or closed loan, meaning the borrower is given a lump sum from the lender. The term and interest rate are usually fixed.

These loans are paid in monthly installments and the borrower is not entitled to any additional money till the lump sum has been received. The loan is very similar to a first mortgage because the homeowner is able to know the amount of the payments in advance.

Some benefits to home equity loans include a fixed rate and tax advantages. Borrowers are able to deduct up to $100,000 worth of interest payments from their federal tax returns which can make these loans very appealing.

Standard home equity loans work best for homeowners who need a large sum of money to pay for home improvements, wedding or consolidate their bills…such as student loans. If you know exactly how much money you need, this loan could be what you’re looking for but if you’re think that amount will change, look into a home equity line of credit.