Equity Mortgage

Equity is a right or claim upon the ownership of the house in terms of its market value. Normally the houses are bought or built on loan on their mortgage. As the mortgager pays off his debt over a number of years, his equity or the ownership claim upon house increases to that extent.

Suppose you need money before you become a complete owner of your house, you can mortgage your equity to the moneylender and receive the money against it.

It must also be noted that equity cannot be sold since the first mortgager has a lien in it, but can be used as collateral to borrow money against its value. Since it is a second mortgage, the interest rate on equity mortgage is usually higher than on the first mortgage due to the obvious risk factors.
A great advantage of equity mortgage loan is that it offers great savings in tax payment due to the fact that the interest paid on a home equity loan is tax-deductible, whereas the consumer loan interest is not tax-deductible.

Home equity mortgages can be used to consolidate the high interest unsecured debts such as those received through the credit cards. Equity mortgages can, therefore, be cost effective especially when the loans against them are used to finance large expenses such as on weddings, university studies or home improvements. This happens because the various other high interest loans that the consumer may have received are consolidated in the lesser interest rate secured home equity loans. This consolidation results in substantial savings in costs.

Equity mortgage loans are of two types. One is where you are paid the total amount you need in lump sum which must be repaid over a fixed period. The interest is charged on the whole amount. The other is that you are issued a checkbook or a credit card so you draw the amount according to your immediate needs. The interest in this type is charged on the amount you withdraw.

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