Definitions
Mortgage Loan
A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.Refinance
To refinance is to pay off an existing loan with the proceeds from a new loan.
Home Equity Loans and Lines of Credit
A home equity loan (sometimes abbreviated HEL) is a type of loan in which the borrower uses the equity in their home as collateral. These loans are sometimes useful to help finance major home repairs, medical bills or college education. A home equity loan creates a lien against the borrower's house, and reduces actual home equity.
Home equity loans are most commonly second position liens (second trust deed), although they can be held in first or, less commonly, third position. Most home equity loans require good to excellent credit history, and reasonable loan-to-value and combined loan-to-value ratios. Home equity loans come in two types, closed end and open end.
Both are usually referred to as second mortgages, because they are secured against the value of the property, just like a traditional mortgage. Home equity loans and lines of credit are usually, but not always, for a shorter term than first mortgages.
There is a specific difference between a home equity loan and a Home Equity Line of Credit (HELOC). A HELOC is a line of revolving credit with an adjustable interest rate whereas a home equity loan is a one time lump-sum loan, often with a fixed interest rate.
Other Types of Loans
- Lot Loans is used to purchase non-income producing, unimproved land up to a maximum of 40 acres. You can use this loan to buy the land you want to build your new home on.
- Construction Loans In the broadest sense of the term, a construction loan is any loan where the proceeds are used to finance construction of some kind. The term is used to describe a genre of loans designed for construction and containing features such as interest reserves, where repayment ability may be based on something that can only occur when the project is built. Thus the defining features of these loans are special monitoring and guidelines above normal loan guidelines to ensure that the project is completed so that repayment can begin to take place.
- Commercial Loans is a bank loan granted for the use of a business.