Travelling the World with a Home Equity Loan

Some homeowners can obtain a kind of loan which allows them to use the equity that is built up in their property as collateral. These loans are known as home equity loans. This type of loan can be used to pay for things like medical bills, home improvements and repairs, college education, or even a dream car or vacation. The loan obtained against the borrower’s house reduces the equity of the home.

The home equity term and the home equity line of credit are the two forms of available home equity loans. The home equity term is fixed while the home equity line of credit is variable. Based on the fact that home equity mortgages are obtained against the equity of a property, they are commonly referred to as second mortgages. These loans are normally for shorter terms than traditional mortgages.

A home equity term and a home equity line of credit are different in that a home equity line of credit is a revolving credit line with different interest rates, while a home equity term is a fixed interest, one-time loan that provides the borrower with a lump-sum amount. A revolving credit means that the homeowner can borrow whenever and how frequently he likes using the equity of the property as collateral.

It is always wise to know how you will repay the loan before taking out a home equity loan. Some plans allow you to repay a portion of the principal amount and the interest amount on a monthly basis; while other plans allow you to pay the interest only on a monthly basis. Many providers allow you to pay more than what you are required to pay. In most cases, you are also provided with a choice of payment options from which you are allowed to choose only the most suitable for you.

Retirement Equity Loans Differ
While it is nice to consider there might be a way to travel the world while you are still young and wish to take a holiday there are also other important factors. You might not have time. You might have other expenses that need to be taken care of. You also might not want to have a second mortgage that would require the sale of your home before you could ever repay the loan in your lifetime. If you have hit retirement age you might have a paid off your home. In this situation you could take out an equity loan, but it is different from the standard line of credit.

Lifetime mortgage is usually the key phrase used to describe home equity lines of credit for retirees. This is due to the name of the product indicating that it is specific to your age group rather than a younger generation.

You must be at least 55 years of age for this to work in your favour. You can be older, but the lowest age is 55. You still take money out, but the theory is your home is paid for in full. You then decide if a lump sum, instalment option, or interest only concept will work best. If you want compounding interest to add up because you have no monthly payment option then interest only is not for you. With the drawdown option you pay interest only on what you use and that is tacked on to the end of the agreement when the loan is repaid in full.

The point with lifetime mortgages is that you can live in your home and take out money from your equity without making a monthly payment. You get to spend the money as you wish and when you wish rather than having to worry about repayment each month. This can be a simple means of enjoying your retirement.

Home Reversion Alternative for Retirees
As the discussion is on financial products and you know about regular equity lines of credit and those for retirees, you might wish to understand an alternative as a retiree. If you are 65 years of age or older you could enter into home reversion. In this agreement you sell your home in part or full, then you use the money you gain for living. You still live in your home because you own a portion of it. You also have a lifetime tenancy agreement that stipulates you live rent free until you decide to move out or die.

So if you have been dreaming of travelling the world or going on your dream holiday to that one perfect destination but have not been able to obtain sufficient money to do so, home equity loans provide the perfect opportunity for you to finally obtain the money to do so.