What is a home equity loan?

If you are a home owner you may borrow money against its value. More precisely, you may borrow up to a percentage of the value that you actually own. The value that you actually own is referred to as your home equity. A loan against the equity that you have in your home is referred to as a home equity loan. Home equity loans may be used for any purpose. They are commonly used to consolidate other loans and to take advantage of lower interest rates. Many people use them as a source of money for making home improvements. Home equity loans are commonly used for funding education.

Home equity loans may take the form of a home equity line of credit. A line of credit is useful if you need to borrow sums of money at various intervals of time while you accrue interest only on the amount of the balance at any point in time. The maximum outstanding balance you may have distributed to you at any time with a home equity line of credit is usually a percentage of the amount of equity you have in your home as determined by an appraisal performed at the initiation of the agreement.

Common advantages of home equity loans:

  • They bear lower interest rates than most other types of loans.
  • The interest you pay may be deductible from your taxes.