A home equity loan is when a person borrows money by putting up the value of their home as collateral. People often wonder how home equity loans and home equity lines of credit are different. Even though both use the equity in the home as collateral for the loan, a home equity line of credit is like a credit card in that it can be used more than once as payments are made on the principal balance. Home equity loans, on the other hand, give the borrower a single lump sum and don't let them borrow more money.
Getting a home equity loan has a number of benefits, one of which is that it could increase a homeowner's tax deduction. People often ask for a home equity loan to pay off their credit card debt. Financial experts disagree on whether or not this is a good choice. Credit cards are unsecured, which means that there is no collateral to back up the loan. This means that they can often be paid off for a lower balance if money problems come up in the future. If, on the other hand, you use the value of your home as collateral for a loan, the loan is immediately safe, and if you don't pay it back on time, you could lose your home. When you ask for a home equity loan to pay off high-interest credit cards, you are essentially turning unsecured debt into secured debt.
It's easy to figure out how much your home is worth when the time comes. You take the amount you still owe on your mortgage and subtract it from how much your home is worth. One example is a home that is worth $300,000 and still has $100,000 left on the mortgage. In this case, the value of the home would be $200,000. When you apply for a home equity loan, the lender will often ask for a written appraisal to prove the value of the home. There are also a number of other things that will affect whether or not the loan application is accepted. Before giving a home equity loan, the borrower's past credit history, current job, wages, and debts will all be looked at.
Some of the best reasons to get a home equity loan are to pay for college, pay for necessary medical bills, or even buy a second home. Before you sign on the dotted line, take the time to compare rates for home equity loans and find the best deal you can.
