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Home Equity Loans

What is a Home Equity Loan?

So why would you want a home equity loan? And what exactly is it? The why part is easy. When you are thinking about a major expense, such as remodeling your kitchen, or looking to consolidate your bills, a home equity loan could help you achieve these goals. But what’s this equity business? What’s that about? Let’s say you bought your home for $250,000, taking out a $200,000 mortgage, and you’ve made your payments, and knocked that debt down by half. Your home may also have changed in value. So take the current value of your home, subtract the money you still owe on the mortgage, and you get your home equity. A home equity loan enables you to borrow against that value. Because the loan is linked to your house, also called secured, it is safer for banks, and they offer lower interest rates, and higher borrowing amounts than unsecured loans. And the interest you pay may be tax deductible. There are two types of home equity products. The first type is a home equity line of credit. Which functions more like a credit card, with an approved borrowing limit, which you can access as you need over time. And a variable interest rate, which can move up and down. Since your monthly payment is determined by how much you borrowed, and your current interest rate, your payments will vary as you change the amount you borrow, or as interest rates change. The second type is a home equity loan. This usually offers a fixed amount, for a fixed time, with a fixed rate of interest, and predictable regular monthly payments. Now that you know how a home equity loan works, you can start planning that kitchen renovation you’ve been thinking about. Learn more at Discover Home Equity Loans.

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