What is a Home Equity Loan?
When it comes to financing, many people realize that their home can be a place to find a little extra cash. After all, it is often considered one’s largest and most valuable asset. In many cases, using a house for financing purposes is done through the home equity loan. But what is a home equity loan?
Home Equity
First, it would be wise to have a look at what home equity actually is. At the most basic level, equity is how much ownership you have in your home. Equity is what is left when you take what your home is worth, its market value, and subject what you still own on your home mortgage loan. It is what is “yours†as opposed to what is technically the lender’s.
Now that we have a definition of home equity, we can look at the home equity loan. A home equity loan allows you to borrow against your ownership in the home. You can secure a second mortgage loan against the part of the home’s value that is “yours.â€
Advantages of a home equity loan
A home equity loan has some advantages. First of all, you are more likely to get a larger amount of money for your loan. Also, the interest rate is much lower than the rates charged on credit cards. Finally, in some cases, the interest on a second mortgage home equity loan is tax deductible.
The main thing to be wary of is the fact that you are putting your home on the line. A home equity loan for debt consolidation may be risky, since you are taking unsecured debt and turning it into secured debt.
What may be a better option, if you are looking at home improvement, is a home equity line of credit. We’ll take a look at how that works tomorrow.
Tags: home equity loan, home equity, home mortgage loan, home equity second mortgage,
second mortgage, debt consolidation home equity, home equity line of credit
August 17th, 2007 at 1:33 pm
[…] we took a look at what a home equity loan is. Today we will address the home equity line of credit (heloc). To be fair, this is technically […]
November 16th, 2007 at 10:40 am
[…] a worthy goal. Not only can it help you pocket more come resell time, but you can also take out a home equity loan or home equity line of credit, also known as a HELOC. Banks.com mortgages blogger Miranda Marquit […]