What is a Home Equity Loan?

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 accurately.

Why is it important?

A home equity loan is important because it enables you to borrow money against the equity of your home. Your home equity is a valuable asset to get a loan. A home renovation, large payments like medical bills, or a college tuition are common reasons to apply for a home equity loan or to purchase another home. There are many possibilities.

Why Should I Get a Home Equity Loan?

The benefits

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 score. You can also use it to pay back a high interest rate credit card balance; so you could get a home equity loan to get a lower interest rate and lower your payments.

The Downside

Make absolutely sure the benefits outweigh the fees 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, proceed with caution,