A home equity loan is a loan that is secured by the equity of the borrower’s home. Because the borrower’s home is security for the loan the lender will usually offer an interest rate that is lower than it would be for an unsecured loan. The most common reasons for getting a home equity loan are paying for home improvements, paying off other debts that have a higher rate of interest, and paying for other expensive items such as a college education or medical bills.

A borrower should only seek a home equity loan if they are sure that they can repay the loan. If the borrower defaults then the lender could foreclose on the borrower’s home and sell it to recover their losses. A borrower must have equity in their home before applying for a home equity loan. If the borrower’s home is worth less than the balance on their current mortgage(s) then there is no equity to borrow against.

There are two types of home equity loans – a closed end home equity loan, and a home equity line of credit. A closed end home equity loan is a lump sum loan that is repaid in monthly payments over five or ten years, and usually has a fixed interest rate. If the rate is fixed then it is easy to create a loan amortization schedule that shows the balance remaining on the loan after each payment. Variable rates are uncommon for this type of loan because the payments are fixed, so a change in the interest rate might mean that the payments are no longer enough to cover the interest expense. This would lead to a negative amortization, where the unpaid interest is added to the loan balance.

A home equity line of credit works like a giant credit card, except that there are minimum withdrawal amounts as well as fees for each withdrawal. The interest rate on this type of loan is usually variable. Therefore, the monthly payment amount will change depending on the current interest rate and the current loan balance.

Currently, home equity loans are difficult to get unless the borrower has excellent credit and a lot of equity in their home. This is because the home equity loan will be in second position behind the first mortgage, which makes it difficult for a lender to recover any money if the borrower defaults. However, a home equity loan is much easier to get if the borrower does not have a first mortgage because the equity loan would then be in first position. In that situation a borrower may find a home equity loan easier to get than a traditional mortgage.

There is also a tax advantage to getting a home equity loan. Home equity loan interest is usually tax deductible if the borrower’s primary residence is the home offered as security. The borrower should check the tax code or ask a tax professional for advice if they want to take advantage of this tax deduction.



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Many people do not realize that a home equity loan is available to many homeowners. However, some take advantage of them and get one whenever they can qualify. It just really all depends on your home and the equity in it as to whether or not you may or may not qualify for one. There are many places that offer loans against the equity in your home, and you may or not be aware of them.

Why you should get a Home Equity Loan?

There are so many reasons that you might want to take out a home equity loan. Maybe you need to do some home improvements around the house. On the other hand, perhaps you are ready to take that dream vacation that you have worked so hard for. Another reason that many take out a loan against the equity in their home is for debt consolidation. You will find that this is the most popular reason for this type of loan. Simply to be debt free. Taking out a loan and paying off your debt, so that you only have one single payment that is lower to pay every month is a great reason in itself.

Where can I get a loan against the equity of my home?

Most banks or mortgage companies that offer second mortgages are known for home equity loans. Many of them will be willing to look at your information to in return give you the most for your equity that you have built up in your home.

How much will my loan be?

If you are like everyone else, chances are that you are wondering just how much of a loan you can get against the equity of your home. Well, that really all depends on the equity that you have built up in your home and how much of a loan you need. Maybe you do not need the full amount that you are offered, or perhaps you need a little more. Like stated earlier, this depends on the amount of equity as to how large or small the loan will be.

Something to Keep in Mind

If you just bought your home, and you have not made many payments on it yet, then chances are you will not qualify for a loan against the equity in your home. The reason for this is you have to make payments for a while and give the equity a chance to build up. You cannot go and get a loan against the equity in the same day or month you start paying on your home. Simply because there is, no equity built up at that time. You should at least pay on your home for a few years before you try to qualify for this type of loan.

As you can see, the home equity loan is one that can help you out if you were to get in a bind. You can get one to consolidate your debt, or to just help financially.



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