Bad Credit Home Equity Loan - FAQ

What is a bad credit home equity loan?

Start with the fair market value of your house, subtract the mortgage (and second mortgage if you have one) and any liens against the property. What you have left is your home equity. As you pay down your mortgage, your home equity increases.

A bad credit home equity loan will have a higher interest rate than a prime rate loan, but it will still be lower than on other forms of debt. And, it may be tax deductible. Check with a tax professional about your particular situation. The amount you can borrow with a bad credit home equity loan will be based on a percentage of the appraised value of the residence. The percentage rate can vary from 75% to as much as 125%. The length of the financing will also vary.

A bad credit home equity loan is most often taken out to pay for home improvements, but you can use the money for debt consolidation or for anything else. Used wisely, the money can help you improve a poor credit situation.


What are the different types of home equity financing?

Fixed rate loan:
A loan with a fixed rate is a term loan that involves a second lien on your house. That’s why it’s often called a second mortgage. It gives you a fixed amount of money at a fixed rate of interest. It is repayable in equal payments over the life of the loan. Fixed rate financing cost more in set-up fees and come with higher interest rates than adjustable rate or combination rate loans.

Adjustable rate loan:
A adjustable rate loan is also a term loan that involves a second mortgage on your house. The interest you pay varies periodically. It goes up and down according to the index upon which it is based. Adjustable rate mortgages will have a cap on how high the interest rate can go. Your payments will change annually over the term of the loan.

Combination rate loan:
A equity loan with a combination rate can give you the best of both worlds. This type of financing often starts with two or three years of fixed payments, followed by an adjustable interest rate phase. Sometimes, a combination rate loan will allow you to borrow more than you could on a fixed rate loan. The up-front fees can be less and qualifying can be easier with a combination rate loan.


Which is the home equity loan for my situation?

Fixed rate loan:

Adjustable rate loan:

Combination rate loan:


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