Home Equity Loans

A home equity loan is the amount borrowed against the equity in one’s primary home. Depending on the state one resides in, a certain percentage of the equity may be available for a loan. The interest on these loans is tax deductable, just as the interest on a primary mortgage is. One may be able to take a loan for a specified amount or do a home equity line of credit. One can use the funds on this property as they wish, but most often, funds are used to improve the property, consolidate higher interest debt, or higher education. A lien is placed on the property the loan is taken out on; therefore, caution should be taken on this type of loan. Keep in mind, that just like a primary mortgage, the lending bank may foreclose on the property of have a judgment for nonpayment.

Home equity loans are loans of a specified amount that when paid off cannot be borrowed again until one applies for a new loan. For example, if one applies for a $5,000 loan and pays off a portion or the full amount of the loan, the amount paid can’t be borrowed again. Think of this type of loan as an installment loan.

A home equity line of credit is similar to a credit card whereby a credit limit is authorized and one can borrow up to the amount of credit allowed. The maximum amount can be borrowed, paid back, and borrowed again; as long as the credit limit is available.

Regardless of the type of loan one chooses to take on their equity, one must ensure the lender is reputable. Be prudent with the research done and don’t be afraid to ask questions, after all this is your home we’re talking about.

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