Home Equity Loans Resource

When you're looking for a home equity loan, you usually have a specific purpose in mind. Sometimes it's a household emergency, like needing a new roof or air conditioner; other times, you just want to make some home improvements, but don't have enough cash for the job. Home equity loans can be a great resource for these needs.

Many times, home equity loans are also called "second mortgages" because the equity you have in the property is the security for the loan. For this reason, home equity loans usually have a lower interest rate. Original mortgages usually have a term of 30 years, but home equity loans can have a term of five to 15 years.

Many people use home equity loans to pay off their other debts because the interest rate is usually lower than those debts and it can be deducted on your income taxes. One thing to keep in mind about a home equity loan is that when you sell your home, you must pay off the home equity loan or line of credit, so it's probably better to get that loan paid off prior to selling your property.

Basically, there are two types of home equity loans: a closed-end loan, and a home equity line of credit (HELOC). The closed-end loan provides the homeowner with a specific lump sum, which is then repaid over a set period of time with fixed monthly payments. A HELOC is similar to a credit card, but the interest rates are usually much lower. The homeowner may borrow against the HELOC up to a specific amount, and payments are based on the outstanding balance, not the total available credit.

When you are considering borrowing against the equity in your home, you should make sure you will be able to pay the money back. If you do not, you could lose your home. Set up a budget and stick to it so you do not have to worry about making the payments.

It may pay to check your credit before you apply for a home equity loan. If you have a really good credit score, you may be able to negotiate a lower interest rate. Each year, U.S. consumers are entitled to one free credit report from each of the three major credit bureaus, so if you have not requested yours yet this year, you may be able to get your credit reports free of charge.