Home Equity Loans

What is a home equity loan?

by D. Terwilliger

A home equity loan is a loan that allows someone who owns a house to borrow money by using their equity or the value of their home. For a home equity loan your own home will become the payment if you don't pay back the money you borrowed. A home equity loan can be either a changeable mortgage or a fixed mortgage and can be taken as a giant sum or as payment over time. A home equity loan usually is tax deductible when it is used properly.

Why is it important?

A home equity loan is important because it enables you to receive money. Your home equity is literally an excuse to get a loan. Large payments like medical bills or a college tuition are common reasons to apply for a home equity loan. Purchasing another home is the most common reason, as the name states. There are many possibilities.

Why should I get a home equity loan?

The Upside

A home equity loan is good because it is tax deductible. Also, you may be able to borrow up to 125% of your home's equity depending on your credit. It is also good because if you have spent too much on a credit card and you can't pay it back right away, you may be paying a high interest rate; so you could get a home equity loan to get a lower interest rate and lower payments.

The Downside

It may be bad though for other reasons. First of all, you usually have to pay a fee to get the home equity loan. Also, you may lose your home if you don't pay off the debts. If your credit score decreases or your home loses value, the bank may freeze your home equity line, and require repayment without allowing you to use the rest of the credit.

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