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Home Equity Loans-Making The Best Use Of Your Current Home Investment

Aug 25, 2007
Although home equity loans are a good technique to free up extra cash which is tied up in your home, borrowers must be fully aware that they are using their home as collateral. In the event that their loan obligations aren't met, they could lose their home. Traditionally, home equity loans were by and large used for home upgrades that would increase the value of your home. However, these loans have become a feasible alternative for large, non-home improvement related purchases or even for consolidating outstanding debts into one monthly payment at an affordable interest rate. Home equity loans are, essentially, fixed rate home loans that allow you to draw on the cash you've already invested in your home to finance larger debts at less of an interest rate than most revolving credit choices. Home equity loans, occasionally referred to as a second mortgage or borrowing against your home, can open up a lot of avenues as a funding source for a current homeowner..

These loans, secured by real estate, are usually regarded as safer by lenders. Because of this your interest rates also tend to be lower than credit card rates or consumer loans. In addition, regardless of the rate, the interest on debt secured by the mortgage or lien on your personal residence is generally tax-deductible. Please consult your accountant for more detailed information.

Home equity loans can be used to consolidate consumer debt or covering a large expense such as a wedding, college expenses, or home repairs to your existing home. Home equity loans are great in that they use the collateral already invested in your home to secure the loan, helping you to get a better rate out of the deal and make lower payments than you would to a credit card or even on a personal loan. Home equity loans are appealing to borrowers because they usually have a lower interest rate and are easier to qualify for even if you have bad credit. As a bonus, payments on a home equity loan may be tax deductible.

So how much can you get? Equity loans allow homeowners to borrow money against their home's calculated value. Equity is simply estimated by subtracting the outstanding balance owed on the home from the current market value. It merely refers to the cash value that has grown in your home while you have been making regular payments over time.

While most lenders like home equity lending and may be more liberal because they view home equity loans as relatively safe, it's still a loan. Lenders review many factors such as your credit history, ability to repay the loan, and your homes equity (noted above) when deciding how much money to lend. In the end, home equity loans are a great deal if you are certain of your ability to pay them off. Because they normally have a lower interest rate, are less difficult to qualify for (even with poor credit) and the interest may be tax deductible, home equity loans are a great alternative for homeowners. Like anything else however, buyer beware. Lesser known lenders will often target people in vulnerable situations with troubled credit by offering what appears to be an easy answer. Hidden fees and difficult to understand rate calculations can make a bad situation get even worse.
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