Home Equity Loan

By Richard Elliot, LoansInfoWorld.com

Home equity loans are very useful when it comes to making use of the equity in your home to consolidate debts, renovate your home or even if you just need some emergency cash. Home equity loans can save you from refinancing your existing first mortgage. But, a lot of homeowners confound the terms "second mortgage" and "home equity loan." It is understandable since a second mortgage is also a kind of equity loan. But, before, making the decision for take out a loan on the equity in your home, you need to decide if it is in your best interests.

With a home equity loan you can borrow up to 80% of the equity in your house. But there is the downside that your house becomes collateral for any loan on home equity. There are many advantages of a home equity loan. If you choose a fixed home equity loan then the rates give an installment type of loan, with a one-time distribution of funds at the loan closing, and regular monthly payments. But, before jumping to the conclusion that this type of a loan is the best one for your needs, you need to decide ensure that its payment schedule fits into your budget.

There are many other advantages to home equity loans:

• Regardless of the manner in which a home equity loan is used, the interest paid on the first $100, 000 is tax deductible. This is where these loan score over credit cards and non-secured loans.
• If the home equity loan is used to purchase another home or improvements on the existing house, then the interest paid on the first $1 million is tax deductible. But it is advisable to consult a tax advisor on the benefits that you can enjoy.
• Home equity loans are used often as debt consolidation tools. Paying off high interest credit card loan is one such option. A single loan payment is simpler than juggling many creditors with staggering payment schedules. Home equity loan Vs Home equity line of credit (HELOC)
• People with poor credit ratings will find a Home Equity Loan more easily accessible to them because the lender is taking a lot less risk as the loan is secured against their home.

There is also the plus point of a simple and fairly fast application process. And during the time that it takes to complete the usual procedure, you can opt for quick loans. These are short-term personal loans that are arranged before the usual procedures are complied with. When the loan is finally given, this short-term loan is closed. However, there is the accompanying disadvantage of higher interest rates and increased fees.

So, a home equity loan can be a dream come true or a living nightmare. It all depends on how you approach it and the reason you actually want the home equity in your hand instead of your home. If your intent is to reduce debt so that you have breathing room to pay more on other debts, a home equity loan MAY BE on the right track. However, if your objective is to have more breathing room so that you can add more debt, you are heading for a natural disaster.