It's very simple. Home equity loan is a loan that you take from a financial institution and the money is borrowed using your house as collateral. Your home is the security against which the money is lent to you. The equity will be the difference between the market value of the house minus any outstanding debt, mortgage or loans against the property. That is the amount that can be borrowed. It is for this reason these loans are commonly referred to as second mortgages.
The amount borrowed can be charged a fixed or variable rate of interest. One of the benefits of home equity loan is the interest you pay is tax deductible at the end of the year when you file your tax returns.
Home equity loan is often used for purposes like debt consolidation purposes whereby you pay off high interest rates personal loans like credit card debt, medical debt, or education loans. It is also popular for home improvement financing.
There may be a number of ways of availing this kind of a loan. But the net result is always productive as you get a lump sum which attracts a fixed interest rate with fixed monthly repayments. The low monthly payments and affordable interest rates make it very popular.
Home Equity Loans are absolutely attractive mortgage agreements and because of their capability not only to operate as a safety net, they have seen an increase with many homeowners taking up these loans.
Finally it is wise to remember that your home is the collateral which means, in case you are unable to pay the loan you stand to have the house sold by the lender. So it is important to make your repayments constant and timely.
If you are looking for home improvement financing then understanding how a home equity loan works is crucial in helping you decide if this is the type of loan you should get.
