A Home Equity Loan is a Second Mortgage that homeowners can get by leveraging the equity they have built in their homes. A Home Equity Loan is a lump sum of cash that a borrower receives when the loan closes. The loan is repaid over a set period of time, with interest. Many Home Equity Loans come as Fixed Rate Loans with terms varying from five to fifteen years.
A Home Equity Loan is useful because it provides homeowners with easy access to cash. The interest rates on Home Equity Loans are higher than a first mortgage, but much lower than a credit card, so the Home Equity Loan may be a useful solution to pay off credit card debt while saving money on interest. The interest you will pay on a Home Equity Loan is tax deductible, which is also a useful financial benefit for borrowers. The Home Equity Loan is a highly sensible solution for unforeseen, yet highly expensive costs. Home improvements such as a new roof, or emergency medical bills are both good reasons to get a Home Equity Loan if you have the means to pay it back. However, if you have spending or credit issues and need money to pay off your debt, a Home Equity Loan is not a good solution. Unless you change your habits of spending, a Home Equity Loan can help you sink further into debt.
How can I get a home equity loan?
If a Home Equity Loan sounds like it might be the choice for you, click here to find out more.
How is a Home Equity Loan different from a Home Equity Line of Credit?
Both the Home Equity Loan and the Home Equity Line of Credit use the equity in your home as leverage for a loan. The main difference lies in how you receive payment for the loan. In contrast to the lump sum you receive up front for a Home Equity Loan, a Home Equity Line of Credit is an amount of money set aside that you can draw on when necessary. It functions more like a credit card than a Home Equity Loan.
Another little tidbit… The Home Equity Loan became very popular in 1996 because they provided ways for homeowners to evade new tax laws.
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