What Should Know About Home Equity Loans

By Joe Maldonado

home equity loansThe home equity loan is also called the second mortgage. This loan allows a homeowner to borrow against the equity (value paid in) of the house. If you have a home equity loan you can borrow up to 100k on your home and still deduct the interest when you file your taxes.

There are two basic types of home equity loans. You can apply for a fixed rate loan or a line for credit. Each one comes to terms of 5 to 15 years. When you get a home equity loan you have to repay the loan in full before selling the property.

With a fixed rate loan you get all the cash up front. Then just like the original mortgage you have to make monthly installment payments until it is paid off. The interest rates are fixed so no matter what happens in the market your payments remain the same.
The line of credit is a bit different in that it is a variable rate loan. You can use it much like a credit card. Today some come with their own debit card for added convenience. Your monthly payments will vary dependant upon how much you borrowed during that particular month. At the end of the term of the line of credit any outstanding balances must be paid promptly.

Home equity loans come in very handy in emergencies. They are a ready source of cash that you can use to make home improvements, pay college tuition or anything else you desire. A lot of people who find themselves facing a high amount of credit card debt will take out a home equity loan to pay them off.

Lenders love to make these types of loans. They get to collect interest and fees on two loans from the same person. The lender benefits in more ways than one if by chance there is a default on the loan the lender gets to keep all the money paid in on the mortgage and the home equity loan this is in addition to repossessing the house. This is a great deal for them.

When considering a home equity loan you have to be aware of the pitfalls inherent in getting this type of easy money. As in the case of using them for clearing up credit card debt. If you find yourself taking out one home equity loan as soon as the other one has been paid off then you need to seriously rethink your spending habits. This can become a cycle that you will be hard pressed to get yourself out of.

Home equity loans are rarely given for more than the value of the total payments you have made on the home. In any case if you are barely getting by with the mortgage payment taking out a home equity loan may not be such a good idea. Going into debt, just to make a few cosmetic changes to your home is not a good enough reason to put yourself under this kind of added pressure.

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