Equity Loans

Equity loans are becoming increasingly popular. When you have your own home the banks and lending institutions send a barrage of offers to borrow against your home. It is your largest asset and when the banks and lenders contact you to borrow against your home they know there is little risk involved for them

However there is a fairly high risk for you. When you take out an equity loan you put up your home as collateral. This means that you stand a good chance of losing your home should circumstances change and you default on your payments. Payments are every month and once you get behind it is hard to catch up. Consider your spending and earning threshold very carefully before borrowing money this way.

There are some reasons that make an equity loan a good deal. Interest is tax deductible, if you file a tax form that itemizes your deductions. You can often borrow up to 80% and sometimes even 100% of your home assets. Do not borrow more than your home is worth or you will be paying just the interest for many years to come

There are 2 kinds of equity loans, the traditional type works like a second mortgage or lien on your home. You borrow for a number of years at a fixed rate and will pay the money off in monthly installments.

The second type is known as a home equity line of credit (HELOC).  This will work like a credit card. You will be approved for a set amount of money with a ceiling. Sometimes you may not even need as much as the ceiling allows. So you can borrow a lesser amount and still have the rest to borrow any time. As you repay your loan the amount available for borrowing will go up.

Equity loans have a variety of interest rates. Lenders will often try to give low interest rates for about 6 months to encourage the customer to borrow. Be sure you understand that the rates will rise after this period. Also be careful to comparison shop for the best loan rates and loan terms. You should also check whether the cost of the appraisal, credit and title report charges could be waived. Beware of a yearly fee being charged for your advance and whether there will be a penalty for early repayment.

This form of borrowing was primarily used for home improvements but now can be used for anything. The most popular use for equity loans is now for debt consolidation. In fact statistics prove that almost 40% of equity loan advances are used for debt consolidation. The advantage of using your equity loan for debt consolidation is the fact that you will have a considerably lower interest rate than you would on your credit cards. However be advised that if you do this, your home is on the line and you should be careful not to incur any more debts.