Home Equity Loan

A home equity loan is a second mortgage, secured against the equity in your home. A home equity loan carries a low interest rate and the interest is usually tax deductible.

Home Equity Loan Options

A home equity loan offers a way to consolidate debts, pay for home improvements, or otherwise gain some financial flexibility. The most popular form, the home equity line of credit, or HELOC, is actually a line of credit, not a loan. Like a home equity loan the HELOC is secured by the equity in your home, but the HELOC is a line that you can draw from periodically, not a lump sum cash amount that is repaid over time.

What is Home Equity?

During the housing boom, home equity was often talked about. Home equity is that amount of your value (or equity), in your home. If you bought a house for $200,000 and put 20% down, you would have a loan of $160,000, and equity of $40,000. If that home is now worth $250,000, and your loan is now for $150,000, you should have $100,000 in home equity. The home equity loan lets you borrow an amount up to some portion of that equity (often 80%, so in the above example, your max credit would be $200,000, allowing a home equity loan of $50,000, the $200,000 max, minus the orignal loan, of $50,000.

What are the Risks?

A home equity loan is what is called a secured loan, the loan is secured by your property. If you fail to make the payments on your loan, the bank can foreclose on you. If you file bankruptcy, your home may be protected by your states bankruptcy laws, but if you have put the home up as collateral (i.e., your home equity), then the bank can take your home and sell it to recover the amount that they loaned you.

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